Capitalism Definition and Characteristics

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Free Enterprise System Definition and
Characteristics
Free Enterprise System Definition an economic
system that grants individuals the freedom to use
their abilities to produce wealth
Synonyms for this system include capitalism,
market economy, and private enterprise. Each of
these words are used to describe the most
successful economic system in history. As a
result of the benefits of this system, most
countries today are free enterprise countries, of
which some of the best examples are Singapore,
Hong Kong, and the United States.
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Free Enterprise System Cftaracteristics
There are four major characteristics of this
economic system, which are the four freedoms that
the system is based on. Those four freedoms can
be easily remembered with the acronym POET.
The letters stand for
P Freedom of Production In a capitalist
economy, individuals are free to produce. Their
production is only limited by what can be
physically produced at the moment. Producers are
free to expand their total production potential
any time they are able to. A person might own an
automobile factory. The owner of the factory may
produce as many automobiles as his or her
factory is able to assemble. If the owner wants
to produce more, all he or she has to do is
invest in a larger factory, purchase more
automobile parts, and hire more workers.
O Freedom of Ownersftip In a free enterprise
economy, individuals have the right to own
property. Individuals receive payment based on
the value they deliver to the economy.
Individuals are free to manage their private
property in any way they choose. If the
automobile factory owner earns a profit, he or
she has ownership of that profit. The profit
belongs to the owner, who may choose to spend
money on personal expenses, such as a new house
or a vacation to a tropical island. The owner can
also reinvest the profit into his or her factory
to be able to earn a larger profit. There are
infinite ways that the money earned by producers
can be invested or spent. The use of the money
is determined by however the owner sees fit.
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The freedoms to produce, own, exchange, and think
are what makes free enterprise what it is.
E Freedom of Excftange The exchange of goods
and services is vital to a market economy.
Individuals are able to sell and buy goods and
services freely and voluntarily. No agreements
are forced upon anyone. Prices and quantities
are determined through such voluntary agreements.
The freedom to be able to exchange allows the
products from production to be sold. Starting a
new example, a corn farmer needs to be able to
sell crop. The corn farmer can choose who the
corn is sold to, selling the corn to the highest
bidder. The buyers of the corn can be however
much they want as long as the farmer is willing
and able to sell it. The freedom of exchange
allows people to trade cash for product and vice
versa. Without the freedom of exchange, the
freedom of production would be mostly worthless
as people would not be able to sell what they
produce.
T Freedom of Tftougftt Innovation and ingenuity
are what create expanding, healthy economies.
When individuals are able to create new ideas,
improve existing ideas, and share ideas, the
result is a world of abundance. A person might
develop a new invention that doubles the
productivity of agricultural workers or improve
power generation systems to drastically reduce
the cost of energy. Allowing individuals to do
so creates wealth for everybody. The freedom to
communicate ideas through
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speech, writing, the press, and more allows those
ideas to take form in the physical world. The
special ability of mankind is the ability to
produce with the mind. The ability and freedom of
thought have produce miraculous advances in
manufacturing, transportation, healthcare, and
more, including inventions such as the train,
X-ray, steam motor, airplane, and wind turbine.
When the four freedoms of production, ownership,
exchange, and thought are established, a free
enterprise system is born. This economic system
has worked wonders for the world, with an
enormous improvement in human life happening in
the last few hundred years. The system does have
some flaws, such as a lack of a safety net, but
simple, unrestrictive government intervention
can remedy those flaws easily. But even
government intervention is not always necessary
to correct the failures of capitalism. Industry
self-regulation is an effective solution to some
of those problems. As a result of its
effectiveness and near-flawlessness, free
enterprise is the most successful economic
system in history.
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CONTENT Free Enterprise System Definition and
Characteristics Free enterprise system
definition an economic system that grants
individuals the freedom to How the Free
Enterprise System Works Free enterprise is a
beautiful system built on freedom that Freedom
of Production The freedom to produce allows
individuals to create value Freedom of
Ownership Individuals are free to own
property. Freedom of Exchange All exchange
requires the consent of all parties
involved. Freedom of Thought This freedom
spawns new technologies and processes Laborers
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Laborers, or workers, are a necessary part of
every Capitalists Capitalists start, own,
and expand businesses. Financial
Institutions This groups includes banks, asset
management firms, insurance companies, and
more. Investors Investors supply the economy
with capital. Government Government is
necessary for the free enterprise system. Crony
Capitalism Crony capitalism occurs when the
success of a business is determined by
relationships with politicians Communism Thi
s economic system has failed in just about every
single country it has been implemented in. Free
Trade Free trade is the practice of allowing
individuals to exchange goods and services,
without restriction or manipulation, across
international borders. Progress Sustainable
economic progress is the result of a cycle
between technology and investment. Free
Enterprise System Glossary
PURPOSE The purpose of Global Free Enterprise
Center is to support the free enterprise system
and educate individuals on what it is, how it
works, and why it works.
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