Capitalism 1

Capitalism and Ability of the Market to Self Regulate

Introduction

Modern economic systems are subject to human freedom and democracy and thus

advocate for the free movement of goods and services. Capitalism is one of the most common

economic systems in this regard as it fosters competition and private control of production

factors. Unlike socialism and fascism, which emphasize the community’s and government’s

authority on markets, capitalism underpins free markets regulated by demand and supply. These

market forces play a central role in ensuring capitalist economic systems operate without checks

and controls. Additionally, under capitalism, the market economy differs from a command

economy, which is regulated through central planning. It is, therefore, accurate to infer that

markets self regulate due to the influence of capitalist economic systems. To test this hypothesis,

it is vital to review the core features that define capitalism. These elements are crucial in

determining how capitalism enables markets to self-regulate. Furthermore, the review will help

gain insights into the benefits and limitations of self-regulating markets under capitalism. 

Review

Capitalism is based on freedom accorded to individuals when it comes to owning or

producing goods. Under this system, private entities or persons have control over what they

produce, sell, and invest in. Furthermore, they set the prices of exchange for the goods and

services they produce. Supply and demand play a crucial role in underpinning the production of

goods and services in the general market. Most countries have mixed capitalist economic

systems, with government regulations playing a role in regulating business ownership in some

sectors. For example, the United States is a suitable example of a country exhibiting the

characteristics of a capitalist state (CARSON, 2020). It is vital to note that democracy and
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capitalism go hand in hand. These elements align with the relationship between capitalism and

freedom; for goods and services to freely move, there is a need to eliminate the restriction of

people’s freedoms. Therefore, it is accurate to state that democratic governments set the

foundation for capitalism; they utilize the principles of respect for fundamental human rights

(Orange, 2019). The right to freedom of speech, association, and personal life, spills down doing

business, including owning, selling, buying, or investing. 

Looking into the market forces of demand and supply, it is evident that capitalism

underpins markets’ self-regulation. Demand and supply determine the production levels and

prices in some instances. Despite the freedom given to business owners under capitalism to set

prices of goods and services, market demand and competition factors also play a role. Demand

and supply regulate markets by determining the amount of goods and services produced and

availed into the market (Raekstad, 2020). Buyers and producers are the primary players in these

market forces, with each acting independently to gain utility. Therefore, the market keeps its self

in check by ensuring that demand and supply is the central force determining prices. Rather than

a central governing body setting process, the free market forces play a crucial role in determining

the price people and corporations sell their goods and services. Closely associated with this

aspect is the right to own property, which is a primary tenet of capitalism. It is the basis of the

accumulation of capital, which is another feature in free markets. Individuals set their prices of

selling or buying a property based on prevailing demand and supply (Milanovic, 2019). There is

no nominal price set by a central body or government and hence augmenting the capitalist

system’s ability to foster market self-regulation. 

The factors of production under capitalism also point towards the self-regulation of

markets. It is crucial to point out that the end goal in this system is the generation of profit.
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Therefore private entities and individuals control factors of production to optimize efficiency and

sustain profitability. A vital aspect to consider is surplus production; in capitalist economic

systems, the owners hold it to achieve additional profits (Raekstad, 2020). This feature indicates

the freedom and control players in this economic system have and the lack of restrictions on

business practices. This element augurs with the accumulation of capital as it is the primary

economic activity in gaining profits. Players innovate, expand, and produce more to increase

their net worth as there is no government limitation. These aspects point to the self-regulation of

markets regarding growth, technology adoption, and the industrial revolution (Dolfsma and

Grosman, 2019). Regardless of the input from authorities in terms of incentives, subsidies, fiscal

and monetary policies, market forces and the owners’ freedom play an integral role in controlling

the growth of economies. 

Markets and competition also influence the capitalist economic systems’ ability to self

regulate. In these systems, businesses compete for consumers putting in the effort to appeal

through prices, quality of products or services, brand awareness and presence, and reputation. It

is the basis for setting the lowest price possible in the market and strategies that look to increase

efficiency and reduce production costs. Another vital aspect is that organizations and individuals

engage in these markets voluntarily. Monopolies face competition from upcoming firms since

there is freedom of operating businesses, unlike in other economic systems such as communism.

Competition and the free market go hand in hand; it aligns with the ability of supply and demand

to set the prices (Nölke, 2019). Therefore competition and determination of markets are

regulated without input from a central command center, further indicating that capitalism fosters

self-regulation. The equilibrium state fluctuating in response to shifts in demand or supply is is

 Capitalism 4

vital in keeping the market in check. As mentioned earlier, it is the buyers and producers'

activities that regulate markets in capitalist economic systems. 

Freedom and responsibility go hand in hand. Therefore the liberty accorded to private

entities and individuals when it comes to doing business under capitalism calls for responsible

production and exchange of goods and services. It is crucial to understand that markets self

regulates as per the code set by individuals and corporations operating in a particular sector.

According to people's rights, the ability to align production and business practices, including fair

prices, quality of goods and services, and ethical practices within the supply chain, relies on

individuals and entities. As mentioned earlier, mixed capitalism has an element of government

regulation to a certain degree. According to Milanovic (2019 p 37), the ability to follow the set

guidelines, policies, and frameworks regarding adherence to government authority make

businesses self regulate. This is one aspect of capitalism’s ability to influence markets to self-

regulate. It relates to the freedom accorded to the players in the market and the need to protect

consumers. For example, banks and major corporations must adhere to the guidelines highlighted

by International Financial Regulation Standards (IFRS) (Langley and Leyshon, 2017).

Additionally, such institutions have to develop internal policies to ensure that they regulate their

business to align with government, industry, and societal standards.

The central idea in the self-regulation of markets in capitalist markets is the law of

demand. As discussed earlier, demand and supply are the foundation of the market’s ability to

self regulate. They augur the principles of free markets and subsequent freedom of production

and consumption. Additionally, the voluntary exchange of goods and services is crucial in

allowing market forces to set their prices. The law of demand dictates that when demand

increases, the prices follow suit. Players, therefore, increase production upon the realization that
 Capitalism 5

they can make more profits. This increases supply in the market to a level where only the best

competitors remain. Competitors have to moderate prices and keep production efficient to serve

the market (Sell, 2020) optimally. Therefore, the law of demand stimulates processes and

practices that influence the market’s ability to self regulate. There is no need for external forces

to come in and dictate prices or market prices. However, government intervention is vital in

leveling the playing field and eliminating the advantages of amassed by monopolies and

oligopolies. It has the prerogative to oversee the markets’ ability to uphold freedom and fairness,

which is vital in promoting free markets. 

The image below illustrates the relationship between supply and demand and their role in

regulating markets. Retrieved from (Sell, 2020)

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Emerging debate on the government’s role in capitalism has pushed for more freedom

and less regulation. Experts argue that free markets can self regulate since the businesses will

have to protect consumers, offer quality products and services, and underpin affordability. These

features are critical in ensuring that players in free markets provide goods and services with the

consumer in mind. The ability to self regulate in such markets is also influenced by eliminating

the government’s role and thus removing bureaucracy and reducing the costs of doing business.

Free markets are theoretically optimal with allocating goods and services through supply and

demand (Nölke, 2019). The features underpinning self-market regulation in free markets stem

down from personal freedoms allowing individuals to decide what to produce or consume.

Economic growth and transparency fostered by internal and external market forces are also

crucial in underpinning the self-market regulation under capitalism. 

Another vital element in capitalism is the ability to foster free operations of the capital

markets. In these economic systems, commodity, derivative, stock, and bond prices are set by the

law of demand and supply. It ensures that capital markets can self regulate and hence companies

can raise funds and expand (Langley and Leyshon, 2017). A crucial model augmenting

capitalism and its role in underpinning markets' self-regulation is the Laissez-faire economic

theory. It advocates for a hands-off approach to capitalism from the government, allowing free

market forces to play out and influence prices, production, and consumption. Karl Marx is also

attributed to arguments pertaining to the role of capitalism in regulating markets. Aligning with

the labor theory of value, he claimed that despite its ability to enable markets to self regulate,

capitalism is subject to exploitation (Orange, 2019). It is the foundation of imperialism, which

was subject to accumulation theory and its influence on people’s attitudes towards capital flow.
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Conclusion

Capitalism’s ability to uphold people’s choices and freedoms when it comes to producing

and exchanging goods is the foundation for influencing markets' self-regulation. With no checks

and controls, this economic system advocates for free markets. The law of demand and supply is

crucial in this regulation as it sets the precedence for the processes that enable markets to self-

regulate. It is vital in developing prices based on the demand for goods and the amounts

produced by players in the market. Competition also plays a crucial role in facilitating the

market’s ability to adhere to the equilibrium price. Voluntary business decisions, including

producing, selling, and buying, also fosters the business player’s ability to regulate particular

markets. The need to attract consumers, stay ahead of the competitors, and develop a reputable

brand prompts the players to produce quality goods and services at affordable prices. They use

individual freedom to regulate a particular sector; this spills over to the entire market. 
 Capitalism 8

References

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http://kspjournals.org/index.php/JEPE/article/view/2121

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https://doi.org/10.1080/00213624.2019.1606653

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Milanovic, B., 2019. Capitalism, alone: The future of the system that rules the world. Harvard

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