Capitalism is a name given to a socio-economic system in which private ownership means profit to the owner. The means of production is controlled by the owner, so the profit belongs to the private business owner. In capitalism, the production, distribution and price of goods and services are determined by free market.

Labor are referred to as wage labor

Usually capitalistic competition policies are based on the efficiency of economic feasibility. In a capitalist system the labor is called wage labor as wages must be paid to the laborers. The means of production means everything else that is needed to produce goods including land and the property rights to it. Capital is the value of items of value that can produce more wealth.

Capitalism is a socio-economic system

Capitalism is considered a socio-economic system as it is not considered just as a way of earning money and making a living, but it is also a way of thinking about social organization. The basis of capitalism is the idea of individualism and that individuals have the right to economic freedom.

It’s important to notice the existence of laissez-faire capitalism and then afterwards its replacement by the Keynesian system.

Laissez-faire

In French Laissez-faire means ‘letting go’ and laissez-faire capitalism takes place when the government lets all of its control over trade and economic concerns go and lets the market take over in all aspects. There is a crucial theory behind laissez-faire capitalism and that is unemployment is voluntary due to the individual choice to pursue economic gain.

Keynesian system

The Great Depression, which is known as a period of harsh economic decline in the 1930s, led to high unemployment rates and these were not at all voluntary and this led to the death of laissez-faire capitalism. Capitalism’s rescue is credited to English economist John Maynard Keynes. He has got an innovative approach of macroeconomics by which business cycles and labor markets are analyzed and his helped prevent further economic depression. Today the further growth of of capitalism is by following Keynesian economic methodology.

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