Essay on The Basic Principle Of Capitalism

788 Words Sep 7th, 2014 4 Pages
The most basic principle of capitalism is that of individual rights to life, liberty, property and voluntary contractual exchange. The role of government is solely to the defense of the rights of individuals. The equal principle of equal justice for all under the law is also essential. Capitalist markets to order themselves naturally through the laws of supply and demand. This works for the common good of all. It also results in optimal allocation of resources, and maximum utility. In other words, higher living standards for all. There are three things that are necessary for capitalism. First, one has to have a monetary system for producing bank credit money. Second, one has to have free market exchange. Third, one has to have private enterprise production of commodities (private ownership). These three are all of the “ingredients” for capitalism.
Adam Smith’s “invisible hand of capitalism” is the mechanism. Individuals try maximize their own good to become wealthier and by doing so, through trade and entrepreneurship, the society as a whole is better off. Furthermore, any government intervention in the economy isn’t needed because the invisible hand is the best guide for the economy because individuals are trying to maximize their own good. So, each of use acting in our own self-interests, generates a demand for goods and services that compels others to deliver those goods and services in the most efficient manner. So if the government intervened t would interfere with…

Related Documents