Day 9: Capitalism & Free Market Economics
What is Capitalism?
Capitalism (पुँजीवाद) is an economic system where private individuals and businesses own the means of production, free markets determine prices through supply and demand, and the driving force is profit. Government's role is limited in pure capitalism. It is the dominant economic system globally today.
Origins
From Feudalism to Capitalism: Capitalism replaced feudalism as trade expanded, cities grew, and a new merchant class (bourgeoisie) accumulated wealth outside the feudal system.
Adam Smith (1723–1790) — The Wealth of Nations (1776) argued:
- Individuals pursuing self-interest creates collective prosperity (the "invisible hand")
- Free markets allocate resources more efficiently than any government
- Division of labor increases productivity
- Government should be limited to defense, justice, and public works The Industrial Revolution (1760s–1840s): Capitalism exploded with factories, railroads, and mass production — creating enormous wealth but also enormous suffering for workers, giving rise to socialism and Marxism.
Capitalism in Nepal
Nepal's economy is a mix:
- The 2015 Constitution commits Nepal to a "socialist-oriented" economy
- In practice, Nepal operates a mixed economy with significant private sector activity
- Remittance economy — remittances account for about 25-30% of GDP
- Crony capitalism — business success often depends on political connections
- Limited industrialization — Nepal has struggled to develop a manufacturing base
- Tourism — trekking, mountaineering, and cultural tourism are major economic pillars The key debate: should Nepal embrace more capitalist reforms (free markets, foreign investment) or strengthen socialist protections (land reform, public services)?
Criticism of Capitalism
From the Left: Creates extreme inequality, exploits workers, destroys the environment, commodifies healthcare and education.
From the Right (sometimes): Globalization undermines national sovereignty; free trade can destroy local industries.
Defenders say: Capitalism has lifted more people out of poverty than any other system; innovation and competition improve lives; economic freedom is essential to political freedom.
Daily Quiz
Q1: In a capitalist economic system, how are the "means of production" defined?
A) Everything needed to produce goods and services, such as land, tools, and technology. ✓
B) The final goods and services purchased by consumers.
C) The total purchasing power of the working class.
D) Government-mandated quotas for industrial output.
These are the privately owned assets required to generate products or render services.
Q2: According to Adam Smith, what is the most important goal of capitalism that leads to societal benefit?
A) The individual pursuit of personal profit. ✓
B) The collective ownership of strategic industries by the state.
C) The elimination of competition to ensure stable prices.
D) The redistribution of wealth through progressive taxation.
Smith argued that as individuals seek to maximize their own wealth, society prospers through the 'invisible hand.'
Q3: Milton Friedman argues that economic freedom is a necessary condition for what?
A) Political freedom. ✓
B) Complete income equality.
C) Universal state-provided employment.
D) The abolition of all private property rights.
Friedman posits that by separating economic power from political power, the market serves as a check on government authority.
Q4: What is a distinguishing feature of "State Capitalism" compared to "Laissez-Faire Capitalism"?
A) The government acts as a dominant economic player, using state-owned enterprises for political gains. ✓
B) The complete absence of market mechanisms.
C) The total deregulation of all industries.
D) The requirement that all businesses be owned by worker cooperatives.
In state capitalism, the government uses market mechanisms to create wealth directed as political officials see fit.
Q5: How does the Danish "flexicurity" model reconcile market flexibility with worker security?
A) By combining lax employment protection for firms with generous income support and training for the unemployed. ✓
B) By making it illegal for firms to fire employees during recessions.
C) By replacing the free market with central planning for labor allocation.
D) By forcing workers to pay for their own security through mandatory savings.
The model allows firms to adjust their workforce easily while ensuring workers have high replacement rates and active labor market policies.
Watch the Video
English
नेपाली
Listen to the Podcast
English Podcast
नेपाली Podcast
Day 9 of 77 in the Political Science series.
Share this post
Help this article travel further
One tap opens the share sheet or pre-fills the post for the platform you want.