The Understanding of Capitalism as an Economic System, Look at Its Features!

Definition of Capitalism – Capitalism is often considered as one of the ideologies that can create human well-being. In practice, the ideology of capitalism demands that the perpetrators control the capital and the business model they are targeting with the hope of making a profit.

Capitalist itself is a word that refers to an owner of capital and its understanding is called capitalism. In many countries, the system of capitalism is generally used, but not completely used as an ideology. The government cannot intervene in the ideology of capitalism so that the capitalist system is generally mixed with other economic systems so that the wheels of the economy can run well.

Then, what about capitalism in Indonesia? What is the difference between the ideology of capitalism and liberalism and socialism? Well, so that Reader doesn’t get more curious, let’s go ahead and see the complete discussion about capitalism in the following article!

What is Capitalism?

Capitalism is an economic system that provides full freedom for everyone to control economic activities such as trade, industry, and production tools with the aim of making a profit. In another sense, capitalism is an economic system where all economic activities are carried out by the private sector and not by the government. Here, the government’s duty is only as a supervisor.

Capital owners have the right to determine the price of a product in the market. Simply put, the capitalist system gives freedom to all its actors to organize the economy according to what they want and need.

Here are some definitions of capitalism according to experts, Reader :

1. Karl Max

Hearing the name of Karl Marx, maybe Reader will remember a concept namely Marxism. Karl Marx is known as an expert in interpreting various theories in the fields of economics, government, and society. He also studied the concept of capitalism from various points of view, namely the economic aspect and the political aspect.

Capitalism is an economic system that is created and used with the intention of obtaining profit from every production process. This is done through the mode of production , where the process of organizing each production is done in a measured and systematic way to reduce production costs to the minimum possible.

Profits from the process will provide the strength to standardize labor or workers to dominate. Karl Marx also divided this system of capitalism into two classes, the capitalists and the workers. Where, the capitalists are the bourgeois who have various tools for production. While the laborers or the proletariat are people who do not have production tools, production materials, and even work space.

2. Max Weber

One of the presumptions that resonates with the negative side of the meaning of capitalism is the presumption put forward by Max Weber. According to Max Weber, capitalism has benefits and positive aspects for human life. Where, this spirit of capitalism goes hand in hand with religious doctrine.

Capitalism is present as a good understanding to make people prosperous so that they are diligent in working, have a disciplined life, as well as a frugal life. This is linked to the concept of capitalism which was initially born from Protestant ethics as a form of worship to God.

This Protestant ethic was born as Calvinists in Europe who believed that everyone was destined to go to heaven or hell so that in order to get good, people must succeed in working in the world. This doctrine created a work for Weber that was applied by the Calvinists in order to encourage enthusiasm in working because the measure of success in this world is considered to also affect success in the afterlife.

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3. Adam Smith

Adam Smith’s view on the meaning of capitalism is different. According to him, this understanding of capitalism exists to support a better economy. Where, an individual has a great role to prosper a nation by making that individual a more respected figure. This is due to its ownership of production equipment, distribution, and profit management.

  • Creating wealth is actually the concern of an individual not the government.
  • An individual must have wealth in the form of personal property or resources precisely.
  • Freedom in the economy that produces a competitive market, where sellers and buyers can choose the market as they wish.
  • The government’s role is limited only to defending, protecting, and overseeing the involvement of foreign parties and job providers.

4. Mr. Soekarno

Capitalism is a social system in society that emerges because of the way of production that separates the workers from the means of production.

5. JM Romein

Capitalism is an economic system that aims to conduct production activities with the aim of generating profit.

Figure of Capitalism

Capitalism is generally associated with Karl Marx. However, unfortunately this is not accurate, Reader because it turns out that the most important figure of capitalism is Adam Smith. Adam Smith is a classic capitalist economic figure who criticized the mercantilism system which he considered to be insufficient to support the economy of society at that time.

He stated that the production movement should move according to the concept of MCM or capital-commodity-money , which will be a non-stop cycle because money will turn into capital again and can turn back when invested.

Adam Smith saw that the market should have laissez-faire or freedom from all government intervention, so that the government only has the task of overseeing all the work done by the community.

Capitalism is different from other economic systems

Capitalism: An economic system that gives all freedom to individuals or the private sector so that they can play an active role in economic activities in order to make a profit. In the capitalist system, each individual is given the opportunity to develop as far as possible and the state cannot do much intervention. A simple example of government intervention in the capitalist system is the setting of the minimum wage.

Socialism: A series of economic and social systems characterized by social ownership of various means of production and self-management of workers. The ideology of socialism is an ideology that gives freedom to the intervention of the state or government to regulate wages, prices of goods and services, assets, and so on.

Characteristics of Capitalism

Here are the characteristics of capitalism that Reader should know.

  • Acknowledgment of the personal rights of each individual.
  • Ownership of means of production by individuals.
  • Individuals are free to choose their own jobs or ventures.
  • The economy is governed by market mechanisms.
  • The government has a very small role in economic activities.
  • The motive that drives the economy is to make a profit.
  • Man is seen as homo-economicus, that is, a person who always pursues his own profit.
  • The understanding of individualism is based on materialism or hedonism (a legacy of Ancient Greece).

Advantages of Capitalism

Although it is often considered disadvantageous to many people, especially small capitalists or those without capital, the capitalist system has advantages, quoting Capitalism:

  • Competition: Capitalism can trigger the emergence of business competition. Capital owners will compete with each other to produce goods and services at the best prices that can be offered to consumers.
  • Innovation: Product competition in the free market will indirectly trigger product innovation. Innovation can be considered as a determinant of sustainability for a business.
  • Price: Competition not only creates innovation, but also price competition. In the capitalist system, each person has the right to decide how much money will be spent to buy a good or service.
  • Efficiency: Efficiency in the capitalist system also has an impact on productivity. Capitalism makes a person work smarter to produce a product or servic
  • Entrepreneur: The capitalist system encourages many people to become entrepreneurs. Every individual has the freedom to start and build a business they like.e with minimal capital, but with maximum profit.
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Disadvantages of Capitalism System

Although it has many advantages, the capitalist system also has disadvantages. Launching Economicshelp, here are the shortcomings of the capitalist system.

  • Limited access to capital: One of the disadvantages of the capitalist system is access to capital that only certain groups have. This is prone to cause imperfect competition in the free market, and can even lead to monopoly.
  • Low wages: The capitalist system only focuses on profits so that the problems of wages and the well-being of workers are often neglected.
  • Inequality: Often the perpetrators of capitalism are considered to have failed to create equality. Because everything has a personal nature, the perpetrators of capitalism can pass on their business to the next generation.
  • Exploitation of nature: Huge profits will trigger capitalists to exploit natural products.

Examples of Forms of Capitalism

In everyday life, forms of capitalism occur in many forms, including:

  • Supermarkets and minimarkets located adjacent to traditional markets
  • Technology company innovations also make people become consumptive
  • Mining exploitation with big profit motivation
  • The stock market trades shares with the aim of raising capital. In the stock market everyone can participate either small individuals or financial companies.
  • The presence of various competitors in various business sectors.

Capitalism in Indonesia

Reader , capitalism that continues to grow in Indonesia until now is inseparable from the influence of Dutch colonialism, you know. Of course, Reader still remembers the VOC forced cultivation system, right? This incident became the root of the emergence of capitalism in Indonesia.

The cruelty of the forced cultivation system by the Dutch became a real form of capitalism, namely the Dutch extorted native wealth in order to fulfill the interests of their own government.

After this forced cultivation system disappeared and Indonesia became independent, capitalism in Indonesia developed and gave rise to a new form of imperialism. During the New Order era, foreign capital began to enter Indonesia which caused the distance between people who had capital and those who did not have capital to become even more visible.

Unfortunately, until now the capitalist system is still developing in Indonesia. We can see where the wealth of resources in Indonesia is still being exploited by other countries. Even so, we can also see the efforts of the Indonesian government to prevent this bad thing from continuing to happen, as can be seen from the Freeport case in Papua where in the end 51% of the shares were controlled by the Indonesian government.

Is the Implementation of the Capitalism System Good or Bad in a Country?

Basically, the notion of capitalism itself is an economic system used by a country to regulate the freedom of capital owners in carrying out business activities. This includes the process of production, distribution, sales, and various other things. Then, is this capitalist system good or bad to implement? The answer depends on Reader’ point of view in responding to it.

If it is based on the explanation of some of these figures or experts, then Reader can interpret it clearly. For Reader , who considers capitalism as a way to gain huge profits or enrich oneself, this is clearly the opinion of Karl Marx. Then, if this understanding of capitalism is carried out as a form of effort to achieve success in the world and the hereafter, then this is Weber’s opinion.


That is the meaning of capitalism, its advantages and disadvantages, and examples that Reader can learn from. Hope it is useful.