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Capitalist System

The concept of the capitalist economic system.

The capitalist economic system is that system that is based on individual ownership of the elements of production, and economic freedom in managing, managing, and exercising economic activity through the price apparatus or market forces. It is an economic system with a social and political philosophy, based on the development and preservation of individual ownership. Expanded on the concept of freedom.

Capitalism appeared at the hands of ((Adam Smith)), who established the traditional (classical) school, and laid the foundations of the capitalist doctrine in his book (The Wealth of Nations), which was published in 1776 AD.

The capitalist economic system believes in material profit, motivating individuals to take initiative, take risks, and invest capital to gain more profits and multiply wealth.

Capital means all funds that can be invested with the intention of making profits . It is not limited to money only, but also to all assets that can be employed in the production process, such as real estate, movables, equipment, commodities, raw materials, securities, intellectual property rights, as well as liquid assets.

The capitalist economic system has prevailed in all countries of the world since the collapse of the socialist and planned economies at the end of the twentieth century, and their joining the ranks of capitalism at the behest of international financial institutions. However, there is a clear disparity in the countries of the world in the level of application of the principles of the capitalist system, especially with regard to the role entrusted to the state in Economics and the degree of market liberalization.

The History of the Establishment of “Capitalism“.

The emergence of “capitalism” goes back to Europe, which was governed by the system of the Roman Empire, which was inherited by the feudal system. Between the fourteenth and sixteenth centuries, the bourgeoisie appeared as a stage following the period of the feudal system. But gradually, when the call for freedom appeared.


Capitalism developed through three major phases: commercial capitalism, industrial capitalism, and financial capitalism. The emergence of capitalism was linked to the movement of geographical discoveries in the sixteenth century, which opened new trade routes for European merchants and opportunities to make profits through the introduction of various commodities and the accumulation of wealth.

The ideas of the Enlightenment, which glorified wealth rather than condemned it as it was in the Middle Ages, also contributed to motivating people to trade and raise money.

gence of industrial capitalism in the eighteenth century as a result of the Industrial Revolution that began in England, where new techniques of production (such as the steam engine and spinning machine) were discovered and spread to the rest of Europe.

The emergence of factories in Europe led to the emergence of a new class in society, the bourgeoisie, which played an important role in the development of industrial production, the promotion of capitalist ideas and a break with the feudal system prevailing before.

Capitalism entered its third stage at the end of the nineteenth century, and this stage is described as the stage of financial capitalism. This stage witnessed the emergence of major international banking institutions and holding companies, stock markets flourished, and industrial companies fell under the dominance of the banking sector.

But this stage was also synonymous with successive financial crises as a result of the inflationary activity of financial speculation and expansionary monetary policies.

Types of “Capitalism”.

▪️ Modern capitalism: It is capitalism that recognizes the state’s intervention in some fields .

▪️ Exploited capitalism: invests money for the benefit of the individual without taking into account the public interest .

▪️ National capitalism: invests money for the benefit of the individual, taking into account the public interest .

The foundations of the capitalist economic system.

The capitalist system was based on the principle of freedom, individual ownership, and revolution against feudalism and the church. (Smith) laid the foundations of the capitalist doctrine on two bases :

1- Economic freedom and the ensuing right of ownership, inheritance, and profit.

2- Market laws based on free competition.

The most important foundations of the capitalist economic system can be summarized as follows:

1- Sole Proprietorship  :

The capitalist system is based on respect for the right of private property, as the individual has absolute freedom to create and dispose of wealth as long as this does not conflict with the prevailing laws.Individual ownership motivates a person to preserve wealth, and not to waste it, or waste it. “His land does not neglect its fertilization so that it does not fade, and his machinery does not tire of maintaining it so that it does not become damaged, and its buildings do not wait for defects so as not to be demolished, and this develops the public wealth, and preserves it. And it reduces the social costs arising from the neglect and neglect that appear in public ownership ”  .

2. Economic freedom  :

The capitalist system is based on economic freedom, and this is a natural product of respect for private property. Individuals must be left free to achieve their personal interests. They choose their profession or activity, and they have the freedom to own and work.

Economic freedom in the capitalist system frees the individual’s hand in production, consumption, and contracting in accordance with the prevailing laws, and these laws limit government intervention to the narrowest possible scope – but it becomes stronger if it conflicts with the interest of the state – considering the capitalist view of production as regulating and self-regulating, And do not have.

3- The competition  :

Competition is one of the most important characteristics of the capitalist system, as it is considered one of the factors that increase economic efficiency and productivity, as producers compete among themselves to attract the largest number of consumers, and the result is the trend of prices to decline, and the exit of low-efficiency producers, and only the competent ones remain in the market, and then This leads to better use of resources, and thus efficient allocation of resources.

On the other hand, there is competition at the level of consumers who compete among themselves to obtain the goods and services they need; Which leads to an increase in prices, so that consumers who do not represent the goods for them are left out of the utmost necessity, or who do not get the benefit they get from the commodity with the price of the commodity, and only those who need the commodity are left in the market .

4- Profit incentive  :

The profit motive in the capitalist system is the main motive for increasing production, and it is the main driver for any decision taken by producers. The producers in the capitalist system choose the appropriate economic activity to exploit the resources in the best possible way, and when this occurs in all economic activities; All economic resources have been used and organized, so as to give the maximum possible profits, and thus society gets the maximum possible income from its resources.

called the risk return; Because the entrepreneur takes risks and takes risks; He may win, or lose, this, and ((Adam Smith) ) indicated that there is an invisible hand standing between the private interest of the individual and the general interest of society. It meets the community’s need for this commodity, and it also achieves more profits.

Thus, we find that profit in the capitalist system is not only a return obtained by the organizers, but it is also considered one of the basic elements running the economic system, and it is always working on its development; In the end, more profit means more production.Thus, competition between producers among themselves, and between consumers among themselves leads to the efficient exploitation of economic resources. As the availability of the feature of competition leads to the provision of goods of the best quality, and the best prices.

Resilience in the face of crises.

One of the important characteristics of capitalism is its unique ability to withstand crises that afflict it, and adaptability to the transformations that occur in society. This feature preventedthe resounding fall of capitalismpredicted by Karl Marx , as he considered the collapse of the capitalist system and the transformation of humanity to socialism as a historical inevitable because of the contradictions that capitalism carries in its womb.

Some economists believe that there are two factors that make capitalism able to adapt and constantly renew itself. The first is innovation and technological development. The Austrian economist Joseph Schumpeter explained the importance of this factor in his book entitled “Capitalism, Socialism and Democracy”. The importance of innovations and technological development (the Internet as a model) is to create new opportunities for growth and stimulate the economy.

The second factor is related to the ability of countries to intervene in the economy by developing and implementing corrective policies, as happened after the 1929 crisis, and as it happened after the Second World War , when countries adopted Keynesian economic policies that contributed to the great growth of the Western economy during what was known as the thirty glorious years.

The advantages of the “capitalist” system.

There are many advantages to the capitalist system, the most important of which are:

1- Free competition leads to quality production and innovation.

2- The development of scientific capabilities pushes the wheel of development and progress.

3- Encouraging entrepreneurship.

4- An increase in the national income.

The Negatives of the “Capitalism” System.

1- The emergence of class and exploitation of workers because of the principle of free prices on which the system depends.

2- Concentration of wealth in a few hands of society.

3- Paying attention to material things at the expense of other things.

4- The occurrence of severe economic crises and the increase in the size of unemployment.

5- Restricting governments and policies in front of huge capitalist economic entities and influencing and controlling the political decision, which leads to the bias of politics to a particular class, which results in weak public services, especially in developing countries.

Reference :


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