To understand communism, one must fully comprehend the meaning and inner-workings of capitalism. Capitalism is a system based on free trade, that is, one or a collective of private citizens doing business with another individual or collective of private citizens. The means of production are owned by individuals instead of the state.
Money is effectively used as work credits. In theory, the more work you do, the more you are able to trade. Id est, one who works for one day won't have the ability to trade as much as one who works for six days. This, in theory, assures that those who contribute to the community are able to have more luxuries than those who do not.
In this system, people are free to create businesses and sell their products with little to no interference from a higher-up. They are free to pay individuals to do work, terminate their employment, determine the amount a product costs, and [legally] do anything necessary to "one up" the competitor. In fact, some people have made a profit by doing nothing but manipulating money, such as buying raw material, sending it to a company to be assembled and packaged, and then selling the finished product to merchants for a profit.
Property is often defined as the cornerstone of capitalism. The bedrock principle of it is that you may do what you want how you want to with anything that you paid for. This can be applied to many situations. If I buy a sewing machine, I can either use it myself, pay someone to make me clothes with it, charge money for allowing someone else to use it, or, if desired, smash it into a thousand pieces and use it in a food recipe. Capitalists claim that without property, one cannot have freedom.
In pure capitalism, monopolies are prevalent and companies could theoretically be as powerful as the government if a purely laissez-faire ideology is adopted. However, in practice the government generally breaks up monopolies, as demonstrated in the breaking up of the Bell Corporation and hefty fines for Microsoft in many European and Asian markets. Capitalist economists denounce this act as anti-free trade and socialistic. Economic moderates and fiscal authoritarians condone this practice, claiming that it protects the consumer from exploitation and gives more freedom of choice.
Capitalism as described in Adam Smith's "Wealth of Nations," which was the first explanation of what capitalism is, has not existed since the Industrial Revolution in America. After unregulated capitalism had demonstrated to be oppressive, environmentally harmful, and plutocratic, perpetuating a cycle of poverty and the uneven distribution of wealth, Western nations adopted socialist programs such as public schools, welfare programs, subsidized healthcare, and Social Security to counter this. The market, though more heavily regulated, is still relatively free. One might characterize it as a mixed economy (Case/Fair Chapter 22) which many governments use to promote both the advance of industry and social welfare.
Communism, on the other hand, is very different. It was defined by Karl Marx and Friedrich Engels in their 1848 pamphlet "The Communist Manifesto." Capitalism, they said, will inevitably lead to class warfare: the workers (proletariat) v. the ruling class (bourgeoisie). The proletariat will eventually vastly outnumber the bourgeoisie, and
The means of production, such as equipment in steel foundries and textile mills,...