From CEOpedia | Management online
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At the turn of the 18th and 19th centuries, as a result of social change in Western Europe and the United States capitalism was formed. Features of this system were:

  • means of production (land, natural resources, manufacturing plants, banks, etc.) were privately owned, protected by the State and law the right of ownership of the factors of production and their use,
  • every man enjoyed personal freedom, and everyone was equal regarding to law,
  • the conditions of the purchase agreements, sales, leases, and the prices were not regulated, they might be freely determined by the parties to the transaction.

The production and distribution processes are guided by the individual decisions of all market participants - employees, investors, managers, consumers. Revenues obtained by them, depend on the available factors of production. Adjustments in the process of the exchange were not needed because it was voluntary, so it had to settle for both the seller and the buyer.

Effectiveness of capitalism

Capitalism can be efficient because:

  • the structure of the produced goods is adjusted to the tastes of consumers,
  • in the process of production, manufacturers are looking for the cheapest methods,
  • prices are self-regulated, with a view to its natural level, ensuring a balance between the supply and demand,
  • people acting in their own interest, perform the work expected by society.


In the initial stage of the capitalist system, the life situation of workers was very bad. In accordance with the principle of free competition, the owner of production factors has determined their working time and the amount of wages. Due to the presence of high unemployment, he had great freedom. If only salary offered by him was able to ensure a minimum of existence, he could easily find willing workers. Because, the machines used in the production were very expensive, they were used up, which in practice meant that operating them people they worked even 16 hours a day. In similar conditions worked also women and children. At the beginning of the 19th century English philanthropists contributed to the origins of the labour legislation. The changes, however, were carried out slowly and only at the end of the century in 1874 in England was introduced 10-hour working time. Most European countries have introduced similar regulations. Capitalism in its pure form does not occur anywhere in the world. Depending on the State and its regulation it can be closer to, or significantly different from the model.