11.7.1: Capitalism Let’s begin with an overview of capitalism

 11.7.1: Capitalism Let’s begin with an overview of capitalism.

 What Capitalism Is People who live in a capitalist society may not understand its basic tenets, even though they see them reflected in their local shopping malls and fast-food chains. 

Table 11.3 distills the many businesses of the United States down to their basic components. 

As you can see, capitalism has three essential features:

 (1) private ownership of the means of production (individuals own the land, machines, and factories), 

(2) market competition (competing with one another, the owners decide what to produce and set the prices for their products), and 

(3) the pursuit of profit (the owners try to sell their products for more than they cost). 

Table 11.3 Comparing Capitalism and Socialism

    What State Capitalism Is No country has pure capitalism. Pure capitalism, known as laissez-faire capitalism (literally “hands off” capitalism), means that the government doesn’t interfere in the market. The current form of U.S. capitalism is state (or welfare) capitalism. Private citizens own the means of production and pursue profits, but they do so within a vast system of laws designed to protect the welfare of the population, and—not incidentally—ensure that the government can collect taxes. Consider this example: Suppose that you discover what you think is a miracle tonic: It will grow hair, erase wrinkles, and dissolve excess fat. If your product works, you will become an overnight sensation—not only a multimillionaire but also the toast of television talk shows and the darling of Hollywood. 368 But don’t count on your money or fame yet. You still have to reckon with market restraints, the laws and regulations of welfare capitalism that limit your capacity to produce and sell. First, you must comply with local and state laws. You must obtain a business license and a state tax number that allows you to buy your ingredients without paying sales taxes. Then come the federal regulations. You cannot simply take your product to local stores and ask them to sell it; you first must seek approval from federal agencies that monitor compliance with the Pure Food and Drug Act. This means that you must prove that your product will not cause harm to the public. Your manufacturing process is also subject to federal, state, and local laws concerning fraud, hygiene, and the disposal of hazardous wastes. Suppose that you overcome these obstacles and your business prospers. Other federal agencies will monitor your compliance with laws concerning minimum wages, Social Security taxes, and discrimination on the basis of race, gender, religion, or disability. State agencies will examine your records to see whether you have paid unemployment and sales taxes. Finally, as your shadowy but ever-present business partner, the Internal Revenue Service will look over your shoulder and demand about 35 percent of your profits. In short, the U.S. economic system is highly regulated and is far from an example of laissez-faire capitalism.

This advertisement from about 1885 represents an early stage of capitalism when individuals were free to manufacture and market products with little or no interference from the government. Today, the production and marketing of goods take place under detailed, complicated government laws and regulations. Credit: PARIS PIERCE/Alamy Stock Photo