CAPITALISM: Capitalism is an economic system based on private ownership of the means of

production and their operation for profit.[1][2][3] Characteristics central to capitalism

include private property,capital accumulation, wage labor, voluntary exchange, a price system,
and competitive markets.[

A type of economy, or economic system, based on--(1) private ownership of most resources,
goods, and other assets; (2) freedom to generally use the privately-owned resources, goods, and
other assets to get the most wages, rent, interest, and profit possible; and (3) a system of
relatively competitive markets.

Capitalism is the predominant economic system in the modern global economy, but is best
exemplified by the United States. Like all other real world economic systems, capitalism (also
termed market-oriented economy) is a mixed economy, with allocation decisions made both
through markets and by governments.
Institutions
The three key components, or institutions, underlying capitalism are private property, individual
freedom, and competitive markets. A little insight into each is bound to provide greater insight
into this economic system.

Private Property: At the top of the list of what makes an economic system capitalism is
private ownership of resources, goods, and assets. In fact, the name capitalism was
coined to emphasize the private, rather than government or public, ownership of capital.
Private property means owners can decide when and where, and even if, to sell their
resources, goods, and assets. For example, if Manny Mustard does not receive a
satisfactory price for his world famous Deluxe Club Sandwich, he can choose not to sell.
He can choose to direct his sandwich-making resources to another product.

Individual Freedom: The ownership of private property works best when owners have the
freedom to use their resources as they see fit. A democratic political system provides the
individual freedoms that work best with capitalism. For example, Manny Mustard has the
freedom to make and sell his Deluxe Club Sandwich as well as the freedoms of speech,
assembly, religion, and other such things found in the Bill of Rights of the U. S.
Constitution. While economic and political freedoms do not necessarily go hand in hand,
economic and political systems tend two work better when such freedoms coexist.
 Competitive Markets: The institution that brings everything together for capitalism is
competitive markets. Competition among buyers and sellers brings out the best, that is
most efficient, use of resources. For example, Manny Mustard competes with other
restaurants to satisfy the appetites of hungry Shady Valley residents. To sell his wares, he
needs to offer the best possible sandwich at the lowest possible price. Moreover, to obtain
the inputs he needs to produce his Deluxe Club Sandwich, he has to compensate
resources for their opportunity cost.

Incentives and Efficiency

These three institutions create an economic environment that provides the incentives to achieve
efficiency. Under capitalism, buyers and sellers have the freedom to direct their resources, goods,
capital, and other assets through competitive markets to the highest valued uses.

Private property means people (buyers and sellers) receive the benefit and incur the cost
of their actions. Manny Mustard stands to personally benefit by way of a higher income
when he directs his sandwich-making resources to the production of highly-valued
Deluxe Club Sandwiches.

Individual freedom means that people (buyers and sellers) can take advantage of
available opportunities. Manny Mustard has the freedom to decide the best use of his
sandwich-making resources.

Competitive markets then provide the mechanism through which people (buyers and
sellers) can exercise their individual freedoms to use their private property in the best,
most efficient, manner possible.

A Mixed Economy
While the emphasis in capitalism is on voluntary allocation decisions made through markets, like
all real world economies, involuntary government allocation decisions are also part of the mix.
Capitalism is a mixed economy, and economy that uses a mix of both markets and governments
to allocate resources.
However, unlike socialism and communism, capitalism relies on markets to a much greater
degree. In the United States, for example, around 70 percent of the resource allocation decisions
are made privately through markets.

Governments have key roles to play in capitalism.

 First and foremost, governments establish the legal "rules of the game." Without laws
and regulations to ensure private ownership of property and guaranteed individual
freedoms, competitive markets could not operate. Manny Mustard, for example, would
not be able to produce and sell his Deluxe Club Sandwich without government enforcing
the laws. Manny needs some degree of assurance that any potential customer who
attempts to acquire ownership of a Deluxe Club Sandwich without payment (that is,
stealing a sandwich) will be punished.

Second and also important, governments are responsible for providing certain types of
goods that cannot be efficiently traded through markets. At the top of this list is public
goods, such as national defense, education, environmental quality, and transportation. The
very nature of these goods prevents buyers and sellers from reaping the rewards or
incurring the costs of production, consumption, and exchange. For example, Manny
Mustard cannot afford to construct and maintain the system of streets and highways
throughout Shady Valley that customers use to reach his restaurant.

A Word or Two on Politics

Capitalism is one of those terms that tends to launch political debate. Some see capitalism as a
representation of all that is good, others see it as the epitome of all that is bad. Of course, like
any aspect of the real world, there is both good and bad.

Those who advocate the good side of capitalism like to point out that it promotes a more
efficient allocation of resources, raises the average living standard of the population, and
generally improves the quality of life. A lot of good to be had here.

Those who highlight the bad side of capitalism tend to note that it perpetuates an unequal
ownership of resources, especially capital, which creates unequal opportunities. This
inequality can then lead to an unhealthy concentration ofwealth, uncompetitive control
over markets, and liberty-threatening political influence.

Comparable to other issues, the pros and cons of capitalism tend to be divided along the lines of
political liberals and conservatives.

Political conservatives are generally strong advocates of capitalism in large part because
they own much of the capital and have the most to gain.
 Political liberals are less favorably disposed toward capitalism because they are less
likely to benefit, and perhaps are even harmed, from the concentration of wealth, market
control, and political influence.

1. Two-class system: Historically a capitalist society was characterized by the split

between two classes of individuals--the capitalist class, which owns the means for
producing and distributing goods (the owners) and the working class, who sell their labor
to the capitalist class in exchange for wages. The economy is run by the individuals (or
corporations) who own and operate companies and make decisions as to the use of
resources. But there exists a division of labor which allows for specialization, typically
occurring through education and training, further breaking down the two class system
into sub-classes (eg the middle class).

2. Profit motive: Companies exist to make a profit. The motive for all companies is to
make and sell goods and services only for profits. Companies do not exist solely to
satisfy people's needs. Even though some goods or services may satisfy needs, they will
only be available if the people have the resources to pay for them.

3. Minimal government Intervention: Capitalist societies believe markets should be left

alone to operate without government intervention. However, a completely government-
free capitalist society exists in theory, only. Even in the United States--the poster child for
capitalism--the government regulates certain industries, such as the Dodd-Frank
Act for financial institutions. By contrast, a purely capitalist society would allow the
markets to set prices based on demand and supply for the purpose of making profits.

4. Competition: True capitalism needs a competitive market. Without competition,

monopolies exist and instead of the market setting the prices, the seller is the price setter,
which is against the conditions of capitalism.

5. Willingness to change: The last characteristic of capitalism is the ability to adapt and
change. Technology has been a game changer in every society and the willingness to
allow change and adaptability of societies to improve inefficiencies within economic
structures is a true characteristic.

Bottom Line
 Capitalism in its purest form is a society in which the market sets prices for the sole
purpose of profits and any inefficiency or intervention that reduces profit making will be
eliminated by the market.

Free Enterprise
Capitalist countries encourage free enterprise -- an economic system that promotes
prosperity by allowing private individuals and businesses to compete for profit, according to
the Center for Free Enterprise at Florida Southern College in Lakeland. The system
operates on the principle of survival of the fittest, in which companies that offer the best
products and services for the lowest prices -- while maintaining a high level of profitability --
typically survive. The goal is to maximize profit and minimize cost, promoting robust
competition between businesses as they meet the demands of consumers.

Property Rights
Land ownership and property ownership -- two key individual rights -- enable private
businesses to operate freely without leasing land or property from the government. The
government doesn't have the authority to seize control or manage business operations,
unless the company engages in illegal activity. In the United States, tax laws require
business owners to pay taxes on their real estate, equipment, inventory and profit after
deducting a variety of operating expenses and depreciating the value of durable, long-
lasting tools and equipment.

Minimal Government Involvement

The government has limited, minimal involvement in the market. Sociologists, economists
and politicians often use the French term "laissez-faire," which translates "leaving things to
take their own course," to describe the government's noninterference in private business,
according to Georgia State University. Supporters of capitalism believe in limited taxation, a
business owner's right to set wages and minimal government-mandated labor policies,
other than those designed to ensure employee safety and protect against unfair hiring
practices.

Profit Motive
The primary motive behind capitalism is profit. Private businesses have their own best
interests in mind, and making money is at the top of the list. Due to the self-interested,
money-making objectives, capitalists realize that some companies won't survive in the
competitive business world. They understand that there is negative fallout -- buyouts and
bankruptcies -- suggests Business Insider. However, these negatives often give owners
time to reorganize and restructure or make money when they sell out.
Technological Advancement
Capitalists support technological advancement because it increases productivity,
encourages modernization and leads to increased revenue, according to "The Challenge of
Global Capitalism" by Robert Gilpin. They also understand that there are growing
pains associated with progress, such as initial implementation costs, learning curves,
increased training demands and the need for more highly skilled and educated workers.