Capitalism

Definition

Capitalism is an economic system characterized by private ownership of the means of production, where goods and services are produced for profit in a competitive marketplace. This system emphasizes individual entrepreneurship and market-driven forces, leading to innovation and economic growth, while also contributing to social inequalities and disparities in wealth distribution.

5 Must Know Facts For Your Next Test

1. Capitalism has its roots in the late Middle Ages and gained momentum during the Industrial Revolution, fundamentally reshaping economies worldwide.
2. In capitalist systems, wealth is often concentrated in the hands of a few individuals or corporations, leading to significant disparities in income and living standards.
3. The World-Systems Theory critiques capitalism by highlighting how it perpetuates global inequalities through exploitation of labor and resources in peripheral nations by core countries.
4. Capitalist economies can be prone to cycles of boom and bust, influenced by factors such as consumer demand, investment levels, and external economic shocks.
5. Globalization has accelerated capitalism's reach, enabling multinational corporations to operate across borders and further entrenching economic inequalities between developed and developing nations.

Review Questions

• How does capitalism contribute to global inequalities as described in the context of World-Systems Theory?
  • Capitalism contributes to global inequalities by creating a system where wealth is concentrated among a small elite, often located in core countries. According to World-Systems Theory, this dynamic leads to the exploitation of peripheral nations, where labor and resources are extracted at low costs. This unequal exchange perpetuates poverty and underdevelopment in these regions while enriching developed countries, showcasing how capitalism can exacerbate existing disparities on a global scale.
• Discuss the role of capital accumulation in shaping the dynamics of capitalism and its implications for global development.
  • Capital accumulation is crucial in capitalism as it allows businesses to reinvest profits into expanding operations, improving technology, and enhancing productivity. This process fosters economic growth but also leads to uneven development across regions. Wealthier nations can accumulate capital more rapidly, reinforcing their dominance in global markets, while poorer nations struggle to keep pace due to limited access to resources and capital. Consequently, capital accumulation serves both as a driver of progress and as a mechanism that deepens global inequalities.
• Evaluate the impact of neoliberalism on capitalist economies and how it relates to the widening gap between rich and poor nations.
  • Neoliberalism significantly impacts capitalist economies by promoting policies that favor deregulation, privatization, and free trade. While these policies are designed to stimulate growth and efficiency, they often lead to increased income inequality within and between nations. As multinational corporations leverage neoliberal policies to exploit cheaper labor markets in developing countries, the wealth gap between rich and poor nations widens. This phenomenon illustrates the tension within capitalism: while it can drive innovation and economic expansion, it can also perpetuate systemic inequalities that disadvantage large segments of the global population.

Related terms

free market: An economic system where prices for goods and services are determined by open competition between businesses, without government intervention.

capital accumulation: The process of acquiring additional capital assets, such as factories, machinery, and technology, which can lead to increased production capacity and economic growth.

neoliberalism:

A political and economic ideology that promotes free-market capitalism, deregulation, and reduction in government spending, often emphasizing the role of the private sector in driving economic growth.