Capitalism (Evolution, Principles, Merits and Demerits)

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The term capitalism relates to a system of socio-economic organization. It may be defined as the acquisitive spirit of profit making enterprise. Capitalism as a free market economy, free enterprise, and economic system remain dominant in the western world. Capitalism may be defined as an economic system in which the means of productions are privately owned, production is guided, and income is distributed largely through the operation of market.


Capitalism developed in the 16th, 17th, and early 18th centuries. Due to protestant Reformation of the 16thcentury, acquisitive effort was diminished while hard work was given a strong religious sanction. Economic inequality was justified on the ground that the wealthy were also virtuous. Another contribution factor was the increase in Europe’s supply of precious metals, which results the inflation in prices. Wages did not increase as fast as prices in this period and the main benefits acquired by the capitalists.

In the beginning, 18th century the English Capitalists focused their attention from commerce to Industry and the Classical Ideology of Capitalism. They recommended for leaving economic decisions to the free-play of self-regulating market forces. It gave birth to a concept of invisible hand that accumulates and increases the wealth of a rich person and this concept was given a religious sanction.

Principles of Capitalism:

The capitalism as an economic system bases on the following main principles:
  • To give freedom to an individual to invest money and to attain benefits.
  • State or any other power must not interfere in the economic affairs of the government.
  • Economic disputes are settled in an open market without restrictions of the government.
  • Wealth begets wealth and poverty begets poverty.
  • Wealth and labor possess very small proportion but not equality. Interest, control of market and means of production are the instruments of capitalism.

Forms of Capitalism:

During the course of historical development, capitalism took various forms such as Merchant Capitalism and state capitalism.


  • Capitalism as an economic system helps the development of industry and technology.
  • It kills the unemployment on strict conditions. Capitalism works on the principle of free marketing and completion as well. Therefore, it establishes peace in the society for its smooth functions.
  • It gives benefits to those who use their energy, sell their skill and labor to compete the others.
  • It establishes a standard for human economic activities, a person who works, can achieve.


  • Capitalism divides society into two conflicting groups, the capitalists, and the laborers.
  • Capitalism is parasitic in nature because only few persons live luxuriously on the labor of many.
  • In capitalism, profits go to the financiers who contribute nothing to production.
  • Capitalism degrades man into a means of production like machine minus social norms and values.
  • In capitalism competitions changes into monopoly, production becomes social but remains as private property of a few and the yoke of a few monopolists rest upon the population, which becomes hundred times heavier, burdensome and intolerable.
       Thus, capitalism contains the seeds of its own destruction.