A plain capitalism definition: capitalism is an economic system in which private people and companies, rather than the state, own most businesses, land and tools of production, and run them to make a profit by selling goods and services in markets. Prices and wages are set mainly by supply and demand and by competition.
Almost every country today mixes capitalism with some government role, so real economies sit on a spectrum. The word also carries strong feelings: some see capitalism as the engine of prosperity, others as a source of inequality. This page explains how it works and what each side argues.
Entry at a glance
Meaning
An economy based on private ownership, markets and profitPart of speech
NounPronunciation
KAP-ih-tl-iz-uhmWord forms
capitalist (noun and adjective), capitalistic (adjective)Origin
capital + -ism; recorded in English from the 1850sContrasting systems
socialism, communism, feudalismRegister
Neutral term, but often used with praise or criticism
The capitalism definition, feature by feature
- Private ownership. Individuals and companies own factories, shops, farms and machines (the means of production).
- Profit motive. Owners invest money, called capital, hoping to earn more than they spend.
- Markets and prices. Buyers and sellers trade freely, and prices rise or fall with supply and demand.
- Competition. Firms compete for customers, which pushes them to cut costs or improve products.
- Wage labor. Most people work for employers in return for wages or salaries.
- Reinvestment. Profits are often put back into the business to grow it, so capital builds up over time.
How it works: a small worked example
Every key piece of the system appears here: private ownership, investment, wages, prices set by competition, profit and risk. Scale it up to millions of businesses and you have a capitalist economy. A monopoly, where one firm controls a market, is the situation that competition is supposed to prevent, and many governments have laws against it.
Forms of capitalism
- Free market or laissez-faire capitalism. Very limited government involvement, with few rules on business.
- Mixed economy. Private markets alongside public services, taxes, welfare programs and regulation. Most nations today fit here, India and America among them, though each strikes its own balance.
- Welfare capitalism. Markets combined with generous public health, education and social insurance.
- State capitalism. The government owns or controls major companies that still compete in markets for profit.
Rising prices, or inflation, and downturns are among the problems governments in mixed economies try to manage.
Capital, capitalist, capitalism: a short history
The word capitalist appeared in English in the late eighteenth century, borrowed from French, for a person with large sums invested in business. Capitalism followed in the 1850s, first meaning simply the condition of owning capital. Records of it naming a whole economic system begin in the 1870s, and many early users of the word were critics of that system. Capital itself goes back to Latin capitalis, "of the head," which also gave English the sense of main or chief.
The practices the word describes grew strongly in Europe from the sixteenth to the nineteenth centuries, with the expansion of trade and then the Industrial Revolution.
Why people disagree about capitalism
Supporters argue that private ownership and competition reward hard work and new ideas, produce a wide range of goods, and have raised average incomes enormously over the past two centuries. They see markets as a way for millions of people to coordinate without central control, and link economic freedom with personal freedom.
Critics argue that capitalism tends to concentrate wealth, can treat workers unfairly, swings between booms and slumps, and may harm the environment when profit comes first. Some want stronger rules and public services; others want a different system altogether.
Most debates in practice are about the balance: how much regulation, tax and public provision should sit alongside private markets. Compare the ideas on our pages for socialism and communism, and see democracy for the political side.
Capitalism compared with other systems
| System | Ownership | How decisions are made |
|---|---|---|
| Capitalism | Mainly private | Markets, prices and owners |
| Socialism | Social or public ownership of key industries, in many forms | Planning, cooperatives or democratic control, mixed with markets in some versions |
| Communism (as a goal) | Common ownership, no private ownership of production | Collective planning |
| Feudalism | Land held by lords | Duties and custom |
How societies organize money and power is a theme running through the law, politics and society and business and money sections.
Frequently asked questions
What does capitalism mean in everyday language?
Put simply, it is an economy where private people and companies own businesses and try to make a profit by selling things. Prices and wages are mostly decided by markets rather than by the government.
How would you define capitalism briefly in a test answer?
A short definition of capitalism: it is an economic system in which privately owned firms, land and equipment are operated for profit through competitive markets.
Is India a capitalist country?
India has a mixed economy. Private business plays a large role, while the government also runs public enterprises, provides services and regulates markets.
What is a capitalist?
A capitalist is a person who invests capital in business to earn profit. As an adjective, capitalist describes things linked to capitalism, like a capitalist economy.
How do you pronounce capitalism?
KAP-ih-tl-iz-uhm. Five quick beats, and the opening KAP is the strong one.
What is the opposite of capitalism?
Socialism and communism are usually named as contrasting systems because they favor social or common ownership. In reality most economies combine features of several systems.