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.


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BREAKING DOWN '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.

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