In defence of capitalism

The recent financial crisis has made many people question capitalism. Before doing so one must consider some important points. Firstly what capitalism is and how exactly it works and secondly how beneficial it is.

At the heart of capitalism there is the free market, and the heart of the free market is the price mechanism. Through this mechanism efficient use of limited resources is achieved. After all the free market is nothing but a tool through which a society can distribute limited resources between unlimited wants of all the people. However for this efficient allocation to happen the market has to be competitive. This means that there must be many buyers and sellers, there must be good information available for all, and entry and exit to the market for producers must be easy and quick.

Perfectly competition unfortunately does not exist. However the closer we get to it the better are the results. We have seen countless times, where competition is applied the outcomes are beneficial, be it in the car market or food market. As we open our borders to free trade we get more choice and lower prices, improving the living conditions for the vast majority.

The recent credit crisis is not a demonstration of the free market failing. Businesses still are selfish entities hunting for profit. The only way they can make profit is through providing cheaper and better goods and services than their competitors. Prices still work as an allocation tool, if a good is scares it is more expensive and thus people think twice before buying that good, only people who really need that good will buy it. This system is still more efficient and produces vastly better results than some form of public ownership and central planning.