definition of capitalism

From an economic standpoint, capitalism is an economic system whereby all capital (defined in next essay below) employed in commerce is privately owned and the benefits (the return generated on the employed capital) accrues to the owners of the capital. The market (individuals willfully making decisions) determines where to allocate capital (what goods and services to produce and what price to sell them) for and the benefits (profits or return on capital) from this exchange accrue to the individual.

The primary alternative to capitalism is socialism or centrally-planned economic systems whereby all the capital (in the form of ownership interests in companies) is owned by the government, and therefore the benefits accrue to the government, not to individuals. In addition, the government, not the market, determines what goods and services to produce. Some countries may employ a combination of the two systems (companies may be privately owned as well as owned by the government).

Capitalism, however, is more than just an economic system. It is a philosophy that revolves around the individual and combines many of man’s natural instincts and the natural forces of economics.

As discussed in the Human Nature essays, man has a natural desire to be free and no economic system allows the individual more freedom to make their own decisions in an economic context than capitalism. In addition, man has a natural desire for wealth and no economic system is better at facilitating the creation of wealth.

Furthermore, capitalism is based on the concept of fairness. As discussed in the Morals essays, the concept of fairness is at the heart of all morality. In an economic context no system is fairer with respect to the rewards accruing to those who have earned and deserve them. One could certainly argue that unequal distribution of wealth is not fair but it is this very concept that drives people to create wealth, which in the end benefits everyone from an economic standpoint as discussed in the Economics essays.

In the context of economics, no economic system is more in line with the natural forces of economics than capitalism. At the highest level, the natural forces of economics compel capital to be allocated to its most productive use and no system accomplishes this more successfully than capitalism. The primary goal of capitalism is to create and maximize wealth which is accomplished by maximizing the return on capital (see Goals of Capitalsim essay below).

Capitalism, however, is not perfect and does have its disadvantages. In a capitalist society only goods or services that can be sold at a profit will be produced which one could argue may not encourage the most desirable culture or maximize the quality of life in a given society. In addition, pure capitalism is really survival of the fittest and such an environment encourages unethical behavior, which is the primary enemy of capitalism as will be discussed below