Pillars of Capitalism

Capitalism is founded on the following pillars:

Private property, which allows people to own tangible assets such as land and houses and inta-ngible assets such as stocks and bonds;

Self-interest, through which people act in pursuit of their own good, without regard for socio-political pressure. Nonetheless, these uncoordinated individuals end up benefiting society as if, in the words of Smith’s 1776 Wealth of Nations, they are guided by an invisible hand;

Competition, through firms’ freedom to enter and exit mar-kets, maximizes social welfare, that is, the joint welfare of both producers and consumers;

A market mechanism, that dete-rmines prices in a decentralized manner through interactions between buyers and sellers –prices, in return, allocate resources, which naturally seek the highest reward, not only for goods and services but for wages as well;

Freedoom to choose, with resp-ect to consumption, production, and investment — disatisfied customers can buy different products, investors can pursue more lucrative ventures, workers can leave their jobs for better pay; and

Limited role of government, to protect the rights of private citi-zens and maintain an orderly environment that facilitates proper functioning of markets.

The extent to which these pillars operate distinguishes various forms of capitalism. In free mar-kets, also called laissez-faire economies, markets operate with little or no regulation. In mixed economies, so called because of the blend of markets and govern-ment, market plays a dominant role, but are regulated to a greater extent by government to correct market failures, such as pollution and traffic congestion; promote social welfare; and for other reasons, such as defense and public safety. Mixed capita-list economies pre-dominate today.

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