Capitalism

AAA

DEFINITION of 'Capitalism'

A system of economics based on the private ownership of capital and production inputs, and on the production of goods and services for profit. The production of goods and services is based on supply and demand in the general market (market economy), rather than through central planning (planned economy). Capitalism is generally characterized by competition between producers. Other facets, such as the participation of government in production and regulation, vary across models of capitalism.

INVESTOPEDIA EXPLAINS 'Capitalism'

Capitalism rose to prominence with the end of feudal economies, and has become the dominant economic system in developed countries. Specific tenets of capitalism, such as property rights and wage labor, can also be considered cornerstones of representative government.

Capitalism is often closely associated with economic growth, as production and price are determined by the market rather than by governments. Private property rights provide individuals with the freedom to produce goods and services they can sell in the market. 

Capitalism has been criticized for its underlying focus on profit, and how that focus can lead to social and economic inequality. Further, it is also criticized for its emphasis on consumption, as the constant purchase of goods and services is necessary for capitalism's success. 

VIDEO

Loading the player...
RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  2. Egalitarianism

    A philosophical thought system that emphasizes equality and equal ...
  3. Command Economy

    A system where the government, rather than the free market, determines ...
  4. Centrally Planned Economy

    An economic system in which economic decisions are made by the ...
  5. Dog Eat Dog

    Intense competition in a market. Dog eat dog competition most ...
  6. Invisible Hand

    A term coined by economist Adam Smith in his 1776 book "An Inquiry ...
RELATED FAQS
  1. What is the difference between a capitalist system and a free market system?

    A capitalist system and a free market system are economic environments where supply and demand are the main factors of price ... Read Full Answer >>
  2. Why do MBS (mortgage-backed securities) still exist if they created so much trouble ...

    Despite their infamous reputation and presumed involvement in the financial crisis of 2007-2008, there are several different ... Read Full Answer >>
  3. What is the difference between mercantilism and imperialism?

    Mercantilism is an economic system in which a country's government manipulates the economy to create a favorable trade balance. ... Read Full Answer >>
  4. How are capitalism and private property related?

    Private property rights are central to a capitalist economy, its execution and its legal defenses. Capitalism is built on ... Read Full Answer >>
  5. Where did the term "capitalism" come from?

    The term capitalism originates from the Latin word capitalis," which literally means "head of cattle." Capitalis comes from ... Read Full Answer >>
  6. What are the differences between capitalism and socialism?

    The fundamental difference between capitalism and socialism is the scope of government intervention in the economy. The capitalist ... Read Full Answer >>
  7. What's the difference between a market economy and a command economy?

    Market economies and command economies occupy two polar extremes in the organization of economic activity. The primary differences ... Read Full Answer >>
  8. What is the difference between communism and socialism?

    Communism and socialism are economic and political structures that promote equality and seek to eliminate social classes. ... Read Full Answer >>
  9. Why did the U.S. government take control of the steel industry in 1952?

    In early 1950, Senator McCarthy began seeing communists in every shadow, prompting him to accuse the Truman administration ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Fundamental Analysis

    4 Misconceptions About Free Markets

    These fallacies have hounded free market economists since the days of Adam Smith.
  3. Personal Finance

    The History Of Capitalism: From Feudalism To Wall Street

    Find out how the economic system we now use was created.
  4. Personal Finance

    Are We Losing The Middle Class?

    Find out where your income and lifestyle put you compared to the national average.
  5. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  6. Options & Futures

    Financial Capitalism Opens Doors To Personal Fortune

    The Industrial Revolution introduced a new age of investing and financial self sufficiency.
  7. Personal Finance

    Microeconomics

    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  8. Insurance

    Free Markets: What's The Cost?

    Some argue that when the free market fails to protect consumers, government regulation is required.
  9. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  10. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center