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Like all economic systems, capitalism comes with strong pros and cons. Uniquely, many of the strengths of capitalism are also the weaknesses.

Capitalism is a system in which means of production and financial institutions are owned by private persons and organizations. In this system, investments, distribution, income, production and pricing are all determined through a free market. The market will either reward pricing and distribution decisions, or it will lead it to failure.

Capitalism works on the basis that individuals and corporations have the right to choose how and where to invest, trade, incorporate, and employ. Everything is governed by a free market, and in that system, free of state regulation, the free market governs the system rather than government intervention.

The state does define and enforce the basic rules of the market and creates a basic infrastructure of basic goods and services. Aside from that, the state does not interfere with the natural ebb, flow and competition that are all a result of capitalism.

In a capitalist economy, competition drives the market. This is true in small businesses as well as large financial institutions. For example, capitalism allows for two restaurants to open up across the street from each other. If there was only one restaurant to choose from, that restaurant would surely thrive. Without competition, the restaurant isn't pushed to excel or improve. The moment another restaurant opens up, though, each must prove themselves, provide a tempting menu, friendly waiters, prompt service and satisfying meals. Each restaurant must fight, compete and strive to excel in order to remain profitable.

This competition has pros and cons, which outline the pros and cons of capitalism.

In competition, the consumer benefits. In the example, the consumer benefits from the competition first by having choice, second by an improved product. Without competition, products and services are apt to fall into carelessness.

However, competition is also a con in capitalism, solely because in that structure it is impossible for everyone to succeed. A ladder of achievement and success is not possible without lower rungs. In the example, the under-performing restaurant will likely go out of business, or at the very least its business will struggle.

In a communist economic system, which is the strong opposite of capitalism, equality is the foundation of the system. In communism, the system is completely regulated by the state. This structure creates equality and eliminates competition. This seems to be the better, more ethical structure of economy. No one is left behind, everyone is provided for and everyone is employed. In practice, though, communism fails from almost every angle.

Humans thrive off competition, and that's what keeps capitalism alive, and also makes it a system in which businesses fail and poverty exists.

Learn more about this author, A. South.
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