The Importance of Capitalism in Business

Business 1050
Fall 2012

What Does Capitalism Mean in Business?

Capitalism can be defined as the “ideal” economic environment for business as it benefits society in many ways. Some of these are freedom, productivity, ingenuity and equality. Capitalism also relies on basic instinct, is constitutionally sound, and stimulates economic growth.

I make an important distinction between “ideal capitalism,” a term used by Karl Marks and others as an endorsement of communism and modern day capitalism, which is addressed here.

Capitalism is most often defined as an economic system where individuals have ownership of economic resources and make decisions relating to their own self-interest. Also referred to “laissez-faire,” a capitalistic economy consists of private business owners who share a common goal; to prosper from the public’s demand for various goods and/or services and keep the lion’s share of the business profits for themselves. The term “free market is often used as another term for capitalism, however free market is an element of capitalism that determines production, prices for goods and services and distribution.

There seems to be a common thread among anti-capitalists; the assumption that the decision-makers derived from successful capitalist ventures act solely in their own best interest. This idea, in itself, is irrational, as the success of business depends on the general public’s need for products and services.

Capitalism allows for freedom of choice. In contrast to Plato’s Republic, where people are relegated to a particular station/rank within society by an elite group of “those in charge,” capitalism allows for individual to choose his.her own station in life. Utilizing land, labor, and capital to produce valuable consumer goods or services, capitalists often endure significant financial and personal risk when building businesses. This risk generates incentive for the business owner to profit from supply and demand in the marketplace.

Success comes in all forms. Consider the business builder, who works tirelessly, with great responsibility for employees without whom the business would fail, as well as the well-being of his/her family. Being at the helm in our career choices offers the security of providing security and higher education to our children without financial hardship or the need for government grants.

According to our US Constitution, we are all entitled to life, liberty and the pursuit of happiness, which basically ensures each individual the right to choose his/her own path in life; and includes the right to work… to build a business… to lawfully accrue wealth.

Capitalist economies are generally characterized by strong incentives and stability. This often includes significant amounts of competition to improve the quality and quantity of consumer goods and services, which breeds ingenuity. Business owners must find ways to differentiate themselves from other companies to gain significant market share levels. Competition is a natural result of a capitalistic society. Larger companies often dominate capitalistic economic markets. However, smaller companies may be able to slowly eat away at these organizations stranglehold by developing new goods or services to meet consumer demand.

Capitalism, as practiced by hard working people with a strong desire for self-sufficiency stimulates economic growth. Simply stated; the higher the incentive to become self-sufficient, the fewer the monetary and product entitlements issued within our current social economic system. In the long term, the acceptance and support of capitalism within our culture will result in a lower national deficit, increased autonomy of individuals and solidarity as a nation.

References:

Plato, The Republic, in The Dialogues of Plato translated into English with Analyses and Introductions by B. Jowett, 3rd edition revised and corrected (Oxford University Press, 1892)

Wolff, Charles, Jr. Markets of Governments: the Choice between Imperfect Alternatives, second edition. Cambridge, MA: MIT Press, 1994.

Schmidtz, David. The Elements of Justice. Cambridge: Cambridge University Press, 2006.

References: Plato, The Republic, in The Dialogues of Plato translated into English with Analyses and Introductions by B. Jowett, 3rd edition revised and corrected (Oxford University Press, 1892) Wolff, Charles, Jr. Markets of Governments: the Choice between Imperfect Alternatives, second edition. Cambridge, MA: MIT Press, 1994. Schmidtz, David. The Elements of Justice. Cambridge: Cambridge University Press, 2006.