CHARACTERISTICS OF PURE CAPITALISM
Although there are as many economic systems as there are countries, we will discuss the basic elements of pure capitalism. Purely capitalist economies are characterized by exclusive private ownership of productive resources and the use of markets to allocate goods and services. Pure capitalism stands in stark contrast to socialism, which is characterized by partial or total public ownership of productive resources and centralized decision making to allocate resources.
Capitalism in its pure form has probably never existed. In all countries characterized as capitalist, government plays an active role in the promotion of overall economic growth and the allocation of goods and services through its considerable control over resources. The reason we examine capitalism in its pure form is essentially twofold. To begin with, most western, developed, economies fundamentally are capitalist, or market, economies. Moreover, and perhaps more important, understanding capitalism in its pure form will better position the analyst to understand deviations and gradations from this “ideal” state. Economies that are characterized by a blend of public and private ownership is known as mixed economies. Most of the discussion in this text will assume that our prototypical firm operates within a purely capitalist market system. Although the complete set of conditions necessary for pure capitalism is not likely to be found in reality, an understanding of the essential elements of pure capitalism is fundamental to an analysis of subtle and not-so-subtle variations from this extreme case.
PRIVATE PROPERTY
In pure capitalism, all productive resources are owned by private individuals who have the right to dispose of that property as manner they see fit. This institution is maintained over time by the right of an individual to