Economy & Capitalism

What is the most important aspect of the economy? Capital! How can we have the best economy if it is so important to people’s lives?
- The economy operates by its own rules, just like physics to the principles of physics.
- Capital stands out as the cornerstone of economic activity. In most advanced economies like the United States, European Union nations, Japan, and South Korea, capitalism prevails.
But what exactly is capital?
- Capital represents accumulated savings—the difference between one's income and consumption. For instance, earning $100K annually and spending $75K leaves $25K as capital. This process of saving is known as capital formation.
Why is capital formation so critical?
- Without it, there would be no capital available for substantial production or economic activity. Everything—from purchasing goods to launching businesses—requires financial resources.
- Yet, forming capital (savings) is challenging, and growing the economy is no easy feat.
Why does capitalism (a free market economy) excel over socialism or communism (where economies are centrally planned by governments)?
- Capital formation and economic growth are significantly more attainable under capitalism than under socialism or communism.