Prominent Features of a Capitalistic Economic System
Part of The Christians Pursuit Accumulation and Use of Wealth
Over two hundred years ago Adam Smith in his classic, The Wealth of Nations, analyzed the way a free market (i.e., a capitalistic economic system) achieves the effective and efficient production and distribution of resources for basic needs, such as food, clothing, and housing, as well as wants. This economic system allows individuals to freely pursue their own objectives and to make exchanges in which each “intends only his own gain,” but “led by an invisible hand … he frequently promotes that of the society more effectually than when he really intends to promote it.”[2] Society gains because parties to the exchange, according to their own perceptions and interests, give up something of less value than what they receive. For example, if you decide to buy a new dress, you value the dress more than the money you give up. The cumulative effect of all individuals voluntarily entering into these exchanges is an economic system that produces more than an economic system that is centrally planned by one entity – whether it be an individual monarch or dictator or a socialistic government. Individuals make exchanges as consumers, laborers, business owners, or agents for business owners – i.e., shareholders. They attempt to optimally utilize the resources they control. In this way the free market system guides individuals to apply their resources (labor, land, equipment, etc.) where they are most productive. The society will create more wealth under capitalism than any other system.
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When I discuss wealth in this paper, I am not referring necessarily to vast or extravagant wealth. Here, I define wealth as “all property that has a money value or an exchangeable value,” rather than “the abundance of valuable material possessions or resources.”[3] This means that a person with any possessions at all has wealth, though he or she may not be considered wealthy.
The definition of capitalism is simple: “the organization of the bulk of economic activity through private enterprise operating in a free market.”[4] A capitalistic economy is most capitalistic when left alone. There are several prominent features of such a system: private ownership of property, self-interest, distribution according to productivity, and freedom from interference from others and government in most transactions.
Each of these four features plays a function in the system. To be motivated people must be allowed to control that which they have received. That is, they must have private property rights. In order to make the system work without outside guidance, all must be motivated by objectives of their own choosing – generally self-interest. Distribution according to productivity causes people to pursue exchanges that yield the greatest reward. This means that the more productive people are, the more they will be rewarded. Also those who produce that which is most valued by society will be most highly rewarded. Non-interference by others or government encourages individuals to pursue exchanges knowing that they will be rewarded consistently and predictably.
The pursuit, accumulation, and use of wealth are not problematic for a capitalist. Clearly the assumption regarding wealth in a capitalistic economic system is that if you attain wealth without coercion or fraud, you have a right to keep it and do with it as you will. In fact, the accumulation of wealth is assumed to be good, because it makes capital investment possible. It is expected that individuals will pursue, accumulate, and use wealth as they wish to fulfill their own objectives.
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