Pros and Cons of Capitalist Economic System - Essay Example

On the other hand, there are some disadvantages of the capitalist approach as advocated by different analysts and economists. Some of the disadvantages of the capitalist economic system are as follows:
- The private ownership of the resources and firms results in creating a monopoly market as there are no regulations from the government.
- The capitalist market neglects the social benefits and only focuses on the profit maximization of the firms.
- The capitalist market approach promotes unequal distribution of wealth and inheritance of wealth without any hard work.
- The unequal distribution of wealth results in the creation of social classes which in turn hurts the overall society and economy.

The economic system is a combination of different factors and elements which contributes to the decisions regarding the production of goods and services in the economy. Different economists have provided different economic systems. The economic systems are classified based on the ownership of the factor of production, the legal framework, the level of competition, the distribution of income, and the organization of decision-making. The economic systems are evaluated based on the abovementioned factors or criteria and are normally categorized into three main categories which are as follows:
- Market economy (Capitalism economic system),
- Planned economy (Socialism economic system), and
- Mixed economy.

Capitalism is derived from the right to life, right to liberty, and right to property. This means that capitalism supports the private ownership of property to control the means of production. Other important characteristics include exchange, capital, efficiency, use of markets, etc. In capitalism, the market is controlled by the market forces and there is decentralized decision-making and economic system. At the same time, there are no legal or political institutions or frameworks to control the market. Five basic characteristics of the capitalist economic system are as follows:
- Rights and freedoms for property ownership.
- Highly competitive market and economy.
- Innovative processes and change.
- No or limited involvement from the government.
- High self-regulation in the market and economy

Marx implemented the theory of history on the sociological and economic impacts of the capitalist economic system. He was of the idea that capitalism can only occur in the short run due to its negative impacts in the long run and thus viewed the capitalist economic system at the historical stage. According to him the capitalist economic system can only be progressive in the short run and eventually will be useless and will be overtaken by socialism. Marx criticized the approach of capitalism as a social economic relation only between the people as opposed to the relation between the people and resources or things. The concept of private ownership of capital tends to benefit the owners and ignore the labourers and workers. The owners earn profits and income at the expense of the labourers and workers. He claimed that capitalism will result in the accumulation of more and more capital by the owner and thus diminishing the labourers or working class and thus will create the need for social reforms. Hence, Marx's criticism of capitalism revolves around the following points:
- There is always a reserved army of unemployed people and hence due to this consistent supply of labour, there is no dramatic change in wages.
- Decreasing rate of profit.
- More chances of business crisis.
- The increasing concentration of wealth in fewer hands and hence more monopolistic firms.
- Increase in the poor conditions of the working class because of the exploitation by the owner class.

The Schumpeter theory of capitalism revolves around the concepts of the role of the entrepreneur and the process of creative destruction. According to Schumpeter, entrepreneurs have the role of bringing in ongoing changes and innovation for improving overall profits and growth. However, this ongoing changes and innovations result in destroying the market. The entrepreneurs provide the customers with more choices and options and thus destroy the demand for the previous products and create more competition. This results in destroying the overall structure of the market and thus results in the process of creative destruction. The creative destruction allows the economy to grow and prosper and the distribution of wealth will shift from the other owners to these entrepreneurs. Schumpeter presented the idea that Capitalism will eventually collapse because of the lack of entrepreneurial activities and creative destruction. He argued that the destruction of Capitalism will be because of the four factors, which are as follow:
- Less or no entrepreneurial activities and ventures.
- Increase in economic concentration.
- The destroying institutional framework of the society.
- The increasing intellectual opposition to entrepreneurial activities.

Keynes criticized capitalism and presented the idea that this economic system cannot exist for long because of the increasing inequality in the distribution of income and the ongoing problem of unemployment. He argued that the capitalist market system will eventually lead to failure because of the no solution for unemployment. At the same time, he was of the idea that the accumulation of wealth by one class in society will eventually disturb the whole system in the long run and thus capitalism cannot survive in the long run.