Capitalism Synopsis

Capitalist economics is an economic system based on the majority of the people, providing labor for the minority, at a cost that is a small percentage of the profit the laborer had generated. It is a system in which those with wealth (an amount of money to invest) can succeed while those without wealth are at a disadvantage. Capitalism, for those with wealth, works like this; Wealth is invested in a business which supplies your Capital (all of the materials needed to run and manufacture your product). This investment returns a finished product and becomes Profit (money gained after capital costs are accounted for). This profit is re-invested and becomes even more wealth. The reason for this re-investment, is because of the "profit motive", which is that the investment will yield a profit and increase your original wealth.

The "free market" is a main pillar of what capitalism is about. The free market is a market that allows anyone who wishes to compete for business in an industry to do so. This competition is based off of "market pricing". The market price, or "equilibrium price" is how the producer and the consumer dictate pricing, and who can compete for that market price. It is a competitive necessity of the producer, in order to compete to offer the lowest price they can without their capital costs coming within a penny of their profit. This competition to decrease capital costs in certain cases has global consequences. An example, is the cost of labor. Due to a competitive market, companies will pay the lowest amount that they possibly can get people to work for. It is for this reason that government is supposed to regulate certain costs and pricing such as the minimum wage that a company can pay for labor. Another case of government regulation is price control. Price control is used to prevent price fixing and price gouging. Price fixing, and gouging are when the prices are being regulated and set by the producer and not the consumer. When this happens, the consumer can be charged any price that is decided and that becomes the market price. A problem with the way that government regulates this is this can result in a shortage. A shortage is a scenario in capitalism, in which consumers have the money to pay the market price, but the product is not available

An important concept behind capitalism and the free market, is supply and demand. Supply is the total amount of a product available for purchase at any price. Demand is the amount of that product that will be bought at any price. Any price change for a product, will not change the supply itself, but the quantity that a company is willing to supply at that price, will. On the other side, a price increase or decrease will affect the demand for the product at that price. When a product has a limited supply (oil), as opposed to being unlimited (trees; wood) than the product is scarce.

Capitalism as a whole, the free market, supply and demand, and profit motive all seem to be for the most part; self correcting, and self regulating. This is the idea which in capitalism is called, the "Invisible hand". It is an idea based off of what economists such as Leonard E. Read (the author of "I, Pencil") observed about the market. They saw that without one real dominant force in the market, things were arranged where their were automatically low prices, competition (balanced the market), and low capital costs. In reality, the invisible hand is competition in the free market. What drives this competition is profit motive, and overall self interest. All occurring in a market that essentially anyone is free to enter. The free market in America, along with profit motive allows for "social mobility". Social Mobility is the chance to elevate your socio-economic status past that of your parents. The incentive for hard work is to better your parents, as is the motive for making profit through investment in the market. Social mobility provides a constant degree of self interest for a reason to invest in the market, which acts as the invisible hand ensuring stability and interest in the market.