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In reality, financiers must also act on intuition, taking an initial and limited chance on an applicant in spite of the ambiguity of the evidence. Since an innovative project is in part inherently difficult to articulate, the success of bankers and venture capitalists in selecting among them hinges not so much on their knowledge of the project as on their ability to enter into a sequential and provisional relationship with the entrepreneur that leaves the latter leeway to experiment and prove himself.

Examples of Capitalism

The innovation is there: the heavy research and development expenditure in the sector of established firms is circumstantial evidence that many large firms are oriented toward innovation. In this sophisticated sector, other institutional mechanisms are evidently at work but their functioning is not well understood and their effectiveness is not yet estimated with much confidence. Yet innovation is not the only aspect of capitalism on which there is not yet much fundamental understanding.

It is obvious that jobs are far more precarious in the relatively capitalist economies than in the corporatist ones, where governments try to avoid any rocking of the boat and to backstop with assorted job protection laws.


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However, capitalism appears to exhibit long swings in economic activity, as measured by employment and unemployment rates, of far wider amplitude than those detectable in the more corporatist economies. Here too a reply is conceivable. It may be that when contractionary forces strike, the prompt restructuring that firms in the relatively capitalist economy are generally permitted to do actually dampens the size of the slump that follow, while the rigid posture maintained by firms in the relatively corporatist economies, with their strictures against layoffs, entails a much deeper and longer slump.

Another of the fluctuation issues is the justice of regarding long booms as no better than long slumps.

Examples of Capitalism

A more radical position raises questions about the justification for blocking or moderating long slumps, provided they are purely or mainly structural rather than the result of monetary malfunctioning. This is the question of economic inclusion. Quite possibly, there is little cost from a failure of highly corporatized or highly socialized economies to include the less advantaged; in those economies a low rate of inclusion is often deemed acceptable and, in some of them, only a minority of the population are in the labor force.

Far more may be at stake in the inclusion of the less advantaged where the business sector is predominantly capitalist. If these capitalist business sectors offer relatively good job satisfaction and personal growth on the whole or offer relatively high wages in comparison with the pay in underground and domestic activities, then an appreciable deficiency in inclusion arising from a wide gap between low-end wage rates and the median wage, with the consequent demoralization and decline of employability, may be deemed unacceptable and may impose high social costs on virtually everyone.

De-merits of Capitalism. Under capitalism, all farms, factories and other means of production are the property of private individuals and firms. They are free to use them with a view to making profit. The desire to earn profit is the sole consideration with the property-owners in the use of their property.

Under capitalism everybody is free to take up any line of production he wishes and is free to enter into any contract with a view to earn profit.

Did You Know?

Prices ration out the available goods and services among buyers according to the amounts each buyer wants and is able to pay for others whose desire is less urgent or whose income is smaller will receive smaller qualities. Prices also provide an incentive for firms to produce more. Where demand is high prices will rise encouraging firms already in the industry to produce more and drawing new firms into the industry.


  1. What Is Capitalism?.
  2. Relate To Teens: Self-Esteem & Body Image (A Parents Guide) (Self Esteem & Body Image)?
  3. Did You Know?.
  4. I simplify a term that has been distorted by many.;
  5. Where demand is falling, prices will normally fall too. Firms will reduce their production, releasing resources for use in other industries where there is demand for them. Firms are buyers as well as sellers. They buy material and supplies from other firms behaving exactly as private individuals do in deciding what to buy and how much to buy. If a new machine promises to reduce production costs or if a certain material can be substituted for another at a saving, the firm will buy the low-cost resources in order to complete with other firms.

    The economy is tied together by millions of those interactions linking producers with one another and with consumers, linking one product with other products and linking every market with other markets. The point is that all the economic units in an economy are inter-related. What a capitalistic economy actually is can be known through its main features. These are derived from the way certain functions are performed and the main decisions of the economy executed.

    A capitalist economy is always having the institution of private property. An individual can accumulate property and use it according to his will. Government protects the right to property. After the death of every person his property goes to his successors. The most important feature of capitalism is the existence of private property and the system of inheritance.

    Everybody has a right to acquire private property to keep it and after his death, to pass it on to his heirs.

    How It Works Compared to Socialism and Communism

    This type of economy has a freely working price mechanism to guide consumers. Price mechanism means the free working of the supply and demand forces without any intervention. Producers are also helped by the price mechanism in-deciding what to produce, how much to produce, when to produce and where to produce. This mechanism brings about the adjustment of supply to demand. All economic processes of consumption, production, exchange, distribution, saving and investment work according to its directions.

    In this economy the desire to earn profit is the most important inducement for economic activity. All entrepreneurs try to start those industries or occupations in which they hope to earn the highest profit. Such industries as are expected to go under a loss are abandoned. Profit is such an inducement that the entrepreneur is prepared to undertake high risk.

    The Sad Decline Of The Word "Capitalism"

    A capitalist economy is characterised by free competition because entrepreneurs compete for getting the highest profit. On the other side buyers also compete for purchasing goods and services. Workers compete among themselves as well as with machines for taking up a particular work. To produce goods of the required type and quality workers and machines are made to co-operate so that the production line runs according to schedule. In this way competition and co-operation go side by side. Every person is free to start any enterprise of his choice.

    People can follow occupations of their ability and taste. Moreover, there is the freedom of entering into contract. Employers may contract with trade unions, suppliers with a firm and one firm with another. In a capitalist economy a consumer is compared to a sovereign king. The whole production frame works according to his directions.

    If a particular type of production is to the liking of consumers, the producer gets high profits. From this class-conflict arises. Conflict between labour and capital is found in almost all capitalistic countries and there seems to be no near solution of this problem. It seems that this class-conflict is inherent in capitalism. In a joint stock company, business is carried on by a board of directors which is democratically elected by the shareholders of the company at its general body meeting.

    However the real functioning of the corporate sector is not really democratic because there is one-share-one vote election.

    Since, big business houses own a majority of the shares of a company, they manage to get re-elected and the company is run as if it were their family business. The entrepreneurial class is the foundation of capitalist economy. Friend me on Faceook. Connect with me on LinkedIn. All other systems of economics support forced exchanges to one degree or another. When is a transaction NOT robbery? Comment Post Comment Your name. E-mail The content of this field is kept private and will not be shown publicly.