What is a Capitalist Economic System?

Infouniversitas.com - In this article, we will discuss the economic system that has existed since ancient times and continues to evolve to contemporary times, namely the capitalist economic system. This is a system that allows individuals to control and shape their own economy based on their aspirations and needs, contrasting with the centralized or command economic system that tends to limit community maneuverability.

This article will discuss various definitions of the capitalist economic system from various experts, such as Tom G. Palmer, Ir. Soekarno, Ebenstein William, Adam Smith, and Max Weber.

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    Each of these definitions provides a different perspective on how the capitalist economic system operates and how it facilitates economic growth, innovation, and interaction in the free market.

    In addition, this article will cover examples of the implementation of the capitalist economic system in various countries, including the United States, Canada, the United Kingdom, Australia, Japan, Germany, France, South Korea, and Singapore.

    We will also discuss some of the advantages and disadvantages of this system, as well as how it impacts the economy and society in various countries, including Indonesia.

    Definition of Capitalist Economic System

    Capitalist Economic System
    What is a Capitalist Economic System

    The capitalist economic system is a variant of the economic system that has been in force from the ancient era to contemporary times. This system facilitates individuals to control their own economic direction and structure based on their aspirations and needs.

    This is a conception that contrasts with the centralized or command economic system, which limits the maneuverability of the community in managing their economy. On the contrary, the capitalist economic system gives the community the freedom to run their economic activities, thus allowing personal economic development.

    Definition of Capitalist Economic System According to Experts

    An economic system is a pivotal component for any nation. Without an established economic system, a country may lose the standards that govern economic behavior, thus potentially impeding the optimal utilization of human and natural resources. Below are several definitions of the capitalist economic system as per various experts:

    1. Tom G. Palmer

    Tom G. Palmer, an economist, contends that the capitalist economic system is a type of economic, social, legal, and cultural framework that aspires to encourage human rights, meritocracy, perpetual learning, and decentralized innovation through voluntary participation within market mechanisms.

    2. Ir. Soekarno

    According to Ir. Soekarno, the capitalist economic system is a social structure emerging from the modality of production and division between labor and the means of production.

    3. Ebenstein William

    Ebenstein William asserts that the capitalist economic system is a more comprehensive and superior social structure in comparison to other economic systems.

    4. Adam Smith

    Adam Smith postulates that the capitalist economic system is a mechanism that can actualize social welfare, assuming that the government does not intervene in policy or market mechanisms.

    5. Max Weber

    Max Weber views the capitalist economic system as an economic model aimed at the marketplace with the objective of generating profits from transactions that transpire within that market.

    The capitalist economic system empowers private business entities to govern a country's economy based on their interests. Further understanding of this can be deepened through other resources.

    Countries with a Capitalist Economic System

    The following countries are generally recognized as practicing the capitalist economic system:

    • United States: Known as one of the early adopters of the capitalist economic system, where the economy is predominated by the private sector and free market.
    • Canada: Adopts a capitalist economic system akin to the United States, with a significant role for the private sector and the free market.
    • United Kingdom: Implements a capitalist system with a large role for the private sector in its economy.
    • Australia: Known to implement a strong capitalist economic system, with domination of private companies and the free market.
    • Japan: Although it has capitalist elements and other economies, the private sector and the free market have a large role in its economic structure.
    • Germany: Germany is an important example in the application of capitalist economics with a strong role for the private sector in its economy.
    • France: Despite significant government regulations in some sectors, France adopts a capitalist economic system.
    • South Korea: South Korea adopts an economic system that is principled in capitalism, which has contributed to rapid economic growth.
    • Singapore: Known for the strong implementation of the capitalist economic system and business-friendly conditions and pro-investment policies.

    Please note that a country's economic conditions and policies can change over time. Other sources such as government websites or reports from international economic institutions can provide the most current information about these countries' economic systems.

    The Difference Between the Capitalist System and Other Economic Systems

    In the capitalist system, every individual has the opportunity to grow as much as possible, as quoted from Capitalism.

    While alternative economic systems such as the command economy limit the community's maneuverability in the development of their economic activities.

    Or the socialist ideology that provides room for state or government intervention in setting wages, prices of goods or services, assets, and so on.

    However, in the capitalist system, the state cannot intervene much. A simple example of government intervention in the capitalist system is setting a minimum wage.

    Advantages and Disadvantages of the Capitalist System

    1. Advantages of the Capitalist System

    As an economic system that often receives various criticisms, especially from small capitalists or those without capital, the capitalist paradigm actually has various positive aspects. Here are some benefits of the capitalist system adapted from the Capitalism source:

    • Development of Competition: Capitalism encourages growth competition among businesses. Capital owners compete to produce goods and services with the best price offers to consumers.
    • Innovation Initiatives: As a result of competition in the free market, product innovation emerges. This innovation often becomes a determining factor in business continuity.
    • Price Control: In the capitalist paradigm, every individual has the freedom to decide how much money will be spent to buy a certain good or service.
    • Efficiency Consistency: Efficiency in the capitalist system directly impacts productivity. Capitalism encourages individuals to work smarter to produce products or services with minimal capital but maximum profit.
    • Entrepreneurship Driver: Capitalism encourages individuals to become entrepreneurs. Every individual has the freedom to start and develop the business they like.

    2. Disadvantages of the Capitalist System

    Despite having a series of advantages, capitalism also shows a number of weaknesses. As a reference, here are some disadvantages of the capitalist system as reported by Economicshelp.

    • Limited capital access: Access to capital is often only limited to certain groups, this is one of the main weaknesses in the capitalist system. This can open opportunities for unfair competition in the free market, and even potentially give birth to monopolies.
    • Low Wage Issues: The main focus of capitalism is often only on profit, so issues of wages and worker welfare are often neglected.
    • Inequality Conditions: Capitalists are often considered to have failed in creating equality. This is because in the context of capitalism, everything is private and capital owners have the right to inherit their business to the next generation.
    • Exploitation of Natural Resources: In an effort to achieve maximum profit, capitalists often exploit natural resources.

    Example of Capitalist Economic System

    To get a clearer picture of how a capitalist economic system works, everyday instances can be observed. A notable illustration of this system is the utilization of natural resources in Papua by the global corporation, Freeport. This came about due to an accord reached between Freeport and the Indonesian government during the new order era.

    Further depiction of capitalism in Indonesia can be seen in the growing presence of contemporary shopping complexes such as Malls, Supermarkets, Minimarkets, Modern Markets, and so forth. It's evident that almost every region in Indonesia now houses a large mall, progressively overshadowing the traditional markets.

    Why does the populace lean more towards malls than traditional markets? The answer lies in the comfort, diverse options, and shopping convenience that malls or modern shopping complexes provide.

    Upon evaluating these instances, we can deduce that in a capitalist economic framework, business moguls with significant capital continue to amass wealth and secure profits effortlessly. Conversely, economically disadvantaged individuals become progressively impoverished, losing avenues to vend their commodities or services.


    The capitalist economic system, with its benefits and drawbacks, remains a preferred choice for many nations and individuals as it offers economic management freedom.

    This structure promotes personal economic advancement, fosters competition and innovation, and grants individuals the liberty to determine their expenditure on goods or services.

    However, the system also introduces issues such as restricted capital access for specific groups, low wage concerns, inequality, and potential natural resource exploitation.

    Ultimately, comprehending the chosen economic system and adopting suitable measures to exploit its benefits and minimize its deficiencies is crucial for individuals and nations.

    Furthermore, striking a balance and fairness in the implementation of the capitalist economic system is essential to accomplish collective prosperity and sustainable development.

    Frequently Asked Questions (FAQs)

    1. What does a capitalist economic system imply?

    The capitalist economic system refers to an economic model that prioritizes individuals as the primary steerers of the economic trajectory and structure; It endows individuals with the freedom to steer their economic aspects such as production, distribution, and pricing in accordance with market laws.

    2. What entails the pros and cons of the capitalist economic system?

    The capitalist economic system's merits encompass fostering competition and innovation and allowing individuals the liberty to determine the pricing of goods or services they purchase. However, its demerits include restrained capital access for certain groups, low wage dilemmas, inequality, and potential natural resource exploitation.

    3. Which nations adopt the capitalist economic system?

    Nations such as the United States, Canada, the United Kingdom, Australia, Japan, Germany, France, South Korea, and Singapore are examples of those that adopt the capitalist economic system.

    4. How does a capitalist economic system contrast with other economic systems?

    In a capitalist economic system, individuals are granted freedom to manage their economic aspects like production, distribution, and pricing based on market laws. Conversely; other economic systems like a command economy or socialism are more centralized and often see government intervention in economic affairs.

    5. Is the capitalist economic system always efficient?

    The efficiency of the capitalist economic system is contingent on its implementation and the ability of individuals and governments to exploit its strengths and mitigate its weaknesses. Moreover; achieving balance and fairness in its application is crucial to ensure mutual prosperity and sustainable development.

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