The Role of Capitalism

The Role of Capitalism
Name
Institution
The Role of Capitalism
Capitalism is a system where ownership of the primary means of production and distribution is private—owners of production and distribution practice control factors through companies (Shaw, 2014). The elements of production are capital goods, natural resources, entrepreneurship, and labor. Capitalistic ownership provides owners with an incentive that helps them to maximize profit. Furthermore, capitalism requires a free market economy to propel. The concept of capitalism runs based on profit and market exchange. Moreover, there is a free operation of capital markets, which helps companies expand their finances since the government does not dictate their production. Capitalism is perceived to have several economic benefits due to an unrestrained market system and production.
Incentives available under capitalistic ownership encourages innovation. The availability of these incentives triggers the need to cut costs and avoid waste. The dynamic of capitalism, where business firms are continually competing to develop profitable products, propel innovation. The overall benefit of these competitions and innovation leads to economic expansion; hence economic growth as business firms face incentives to be innovative and aggressive; the real GDP increases and leads to improved living standards. Furthermore, economic freedom leads to political freedom since the lack of government involvement eliminates bureaucracy and enhances freedom in other life areas.
In capitalist societies, ownership of capital leads to the monopoly power of the goods and labor market. Exploitation in pricing can result from the gain in Monopoly power. Furthermore, a free market could eliminate the social benefits of the surrounding community. These companies aim to maximize profits and ignore the negative impacts of the production activities on the community around, which, in turn, negatively...