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Lorraine Caplan eNotes educator| Certified Educator

There probably is no such thing as a purely capitalistic economy because even the most capitalistic of economies is subject to some governmental regulation.  But people who like capitalism like it because it gives them choices and because it allows them to feel that it is possible for anyone to succeed financially, in contrast to command economies, in which there are few if any choices or incentives and more resignation than hope.

In a capitalistic economy, people choose what to produce and choose what to consume. If I want to start a factory to make toasters or open up a business consulting firm, that is my choice. I decide the price of my product or service.  And those people who want to buy toasters or consult me freely choose to do so, can choose to go elsewhere for a toaster or consultation, or decide that they are not interested in either. One the supply side, choice is one aspect of capitalism that is appealing. For consumers, the demand side of the picture, there are many choices to be made, which people also find quite appealing.  They can choose amongst all sorts of toasters and business consulting firms, to find whatever is best for them, at a price they are willing to pay, because producers are competing with one another in a capitalistic economy.  In a command economy, the government would tell me what to produce, how much of it to produce, and how much I would be paid. Consumers have little or no choice at all in goods and services, since the government has decided what goods will be produced and what services will be offered and has also set the price that consumers must pay.  Most people prefer to have choices, either as producers or as consumers.

Incentive is also a powerfully appealing aspect of capitalism. In a capitalistic society, in theory, anyone can become financially successful. This is the incentive that drives people to produce goods and provide services. If they do this well, they can become wealthy.  They are taking a chance, to be sure, of not doing well, but many people believe strongly enough in their own capabilities and ideas to take this chance.  In a command economy, there is simply no incentive at all. In theory, no one can become wealthy because there is no individual control over production or pricing, and there is no competition for goods and services.  If I make a better toaster, offer better business consulting, and have control over my pricing for either, I have a chance of beating out my competitors and getting rich.  If the government tells me what to make and how much to charge for it, I have no financial incentive to create a better product or service. I stand to gain nothing from doing so, so I plod along, doing what I am told to do. 

The idea of capitalism is to give people these choices, in the supply of goods and services and in the consumption of goods and services, offering an incentive to those who successfully produce or serve, financial success.  Sometimes when I go to the supermarket and see over a hundred choices of salad dressings, though, or go to a shoe store and see thousands of choices, I feel like capitalism has succeeded too well!