Capitalism

Capitalism is described in Webster's College Dictionary as “an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations.” This is in contrast to the main alternative to capitalism—socialism—that is defined as “a theory or system of social organization in which the means of production and distribution of goods are owned and controlled collectively or by the government.” There are many variations or types of capitalism and socialism both in theory and practice, and most countries in the world have mixed economies that have some elements of both production systems. These systems produce both public and private goods and services.

Capitalism can be described as a system: generally as a private sector, market economy regulated by a public sector government. Capitalism can exist as a global system, where exchange transactions that travel over national boundaries are defined as international trade and international finance. Nations can be classified and rank-ordered according to the types of capitalism practiced. One type of ranking would compare levels of taxation and regulation, while another might look at the most dominant formats of business organization.

Capitalism can also be couched as a philosophy. Major philosophical tenets include: emphasis of individual rights over social rights; the right to purchase, own, and sell private property, including real estate; the use of price as a mechanism that guides the demand and supply of goods and services; the reward to entrepreneurs by the earning of profits derived from business operations; and the retention of capital gains resulting from the selling of privately owned assets.

Capitalism also can be experienced as a lifestyle. A capitalist is a person who practices capitalism in a number of roles. These include the entrepreneur, a person who works alone or in partnership to convert an invented idea, product or process to a marketable good or service. A capitalist can also be an investor who provides monetary resources to entrepreneurs, in exchange for a percentage ownership of their organization. A capitalist might be a manager, who seeks higher income and profit sharing associated with a growing business.

A capitalist is also a significant consumer. Income derived from capital gains, business profits, interest earned from renting capital, and salaries is used to acquire assets such as houses, automobiles, and computers, or more general retail consumption of a myriad of goods and services.

Corporate employees can also play the role of capitalist, to the extent they can save a portion of earned wages and invest them to start small-scale businesses; in many cases, home-based and requiring part-time work. In some societies, the majority of residents might be active in business formation of various sizes and scopes. In other societies, the capitalist might be a rare individual, possibly viewed as an opportunistic nonconformist.

In general, a capitalist economy can be described as having a private sector, with the power to produce and distribute goods and services; and a smaller, public sector, which partially taxes and regulates the private sector. The private sector is made up of a myriad set of activities by individuals, partnerships, and corporations, involving investors, entrepreneurs, employers and employees, vendors, and customers. A large volume of transactions occur in thousands of spatially diverse markets.

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