How are the five characteristics of capitalism related to free enterprise?

[Katherine]

[Mukesch Kaley]

1.Rights and Freedoms
Capitalism has a number of characteristics, and the first can be grouped under the category of personal freedom. Basic personal rights and freedoms are the foundation of capitalism. Individuals must have personal property rights for legal control over resources such as land, minerals, crops and currency -- whether those properties are inherited, traded, purchased or earned. In addition, individuals must have the right to engage in enterprise and make their own economic choices based on individual needs and desires.

2.Competitive Market
Capitalism requires a competitive market with many sellers offering comparable goods and services to potential buyers. Competition is a self-regulator of pricing for both buyers and sellers, driving companies to develop better products for consumer appeal. Capitalism is in itself nondiscriminatory. A few individuals may avoid businesses because of race, religion or social status, but the greater marketplace only judges on the quality of services or goods for the price. The competitive market allows anybody to increase her financial status if she will meet the needs of other individuals.

3.Innovative Change
Joseph A. Schumpeter, a sociologist and economist, describes capitalism as having an "evolutionary character" that's never stationary. In his 1942 book "Capitalism, Socialism and Democracy," he describes innovative industrial changes as a process of "creative destruction" where technological advancements revolutionize an industry. Capitalism is in a constant state of change as innovators have the opportunity to lead the marketplace while products, companies and even monopolies that maintain the status quo risk failure, bankruptcy and extinction.

4.Limited Government
Georgia Perimeter College notes that the competitiveness of a capitalist economy is believed to efficiently use of resources, with little need for government intervention. Even in the United States, however, the federal government has imposed regulations over various industries, hindering the benefits of a truly free marketplace. In his 1776 book "The Wealth of Nations," Adam Smith mentions an "invisible hand" that better serves the market and society than any government intervention. When individuals make choices to serve their own self-interests and "moral sentiments," standards rise, with improving social and economic norms. The "invisible hand" theory relates to issues in 2011, such as the desire to buy locally and choosing products that are energy-efficient or made from recycled materials.

5.Self-Regulating Markets
Smith further discusses how self-interest is probably the most influential characteristic of what he calls the "commercial or mercantile system." Self-interest is a positive motivator affecting many other characteristics of capitalism, such as self-regulated real estate and labor markets. Self-interest is the motivation for individuals to purchase, maintain and improve real estate. Individuals have the freedom to decide whether or not to work, with self-interest creating a desire to improve skills for better employment. Self-interest drives companies to create better products and services, while choosing to efficiently use resources that reduce their own costs and improve their overall public image.