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Capitalism is an economic system where means of production is privately owned and operated for profit.[1][2]

Property owned by individuals, not by the government is often called private property. In theory, under competition, in capitalist free market economies, prices move up or down according to the availability of products and how many people want them. In most countries, there is some regulation (trade laws) and some planning done by the government. They are sometimes called "mixed economies" to indicate this. Some people disagree on whether capitalism is a good idea, or how much of capitalism is a good idea.

The word comes from "capital", meaning something of value that is used to make things. This can be money ("financial capital") or any other goods that can be traded. The word "capital" originally comes from the Latin word "caput", meaning "head." It was used to mean how many "head" of cattle a rich person owned, in days long ago when cattle were used as money. In fact, the words "capital" and "cattle" both come from "caput".

The philosopher Adam Smith's book, The Wealth of Nations, was an important book that developed the ideas of capitalism and the free market. The word "capitalism" was not used until the 19th century. The greatest invention of capitalism is often said to be the joint stock company.[3][4] A joint-stock company is a business where different stocks can be bought and owned by shareholders. Each shareholder owns company stock in proportion to the number of their shares.

Buying, selling, working, and hiring

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In capitalism, people may sell or lend their property, and other people may buy or borrow it. If one person wants to buy, and another person wants to sell to them, they do not need to get permission from higher power. People can have a market (buying and selling with each other) without anyone else telling them to. People who own capital are sometimes called capitalists (people who support capitalism are called capitalists, too). They can hire anyone who wants to work in their factories, shops or lands for them for the pay they offer.

The word capital can be used to mean things that produce more things or money. For example, lands, factories, shops, tools and machines are capital. If someone has money that can be invested, that money is capital too.

In capitalist systems, many people are workers (or proletarians). They are employed to earn money for living. People can choose to work for anyone who will hire them in a free market.

This is different from many older economic systems. In feudalism, most people were serfs and had to work for the people who owned the land they lived on. In mercantilism, the government makes it hard to buy things from other countries. In many countries with mixed economies (part capitalism and part socialism) there are laws about what you can buy or sell, or what prices you can charge, or whom you can hire or fire.


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An investment is when people invest (put) their money in things. People can put their money together to buy or build things, even if they are too big for one person to make alone. The people who invest get to be the owners of what they buy or build together. The stock market lets people buy and sell investments.

Investing is important to capitalism. The word "capitalist" can mean two things: it can mean someone who likes capitalism; but it can also mean someone who invests. For example, a venture capitalist invests in new businesses.

People who start businesses, or invest in businesses, can make a lot of money. A business sells things that people want. The investors make extra money, which is called profit. Investors can take their profit and invest it in more businesses, or in making the business bigger. The investors can get more and more profit if the businesses are successful.

People who disagree

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Socialists and communists are people who do not support capitalism. They say it hurts workers, because businesses make more money by selling things than they pay the workers who make the things. Business owners become rich while workers remain poor and exploited (taken advantage of). They also argue society would be more efficient if people thought less about competing against one another for their own interests and thought more of working together for the overall good of society. Another argument is that each person has a right to basic needs (such as food and shelter). Within capitalism, sometimes people might not get everything they need to live. Capitalism is also said to be the main culprit of economic inequality.

Karl Marx was a famous communist philosopher from Germany. He wrote a famous book called The Capital (or Das Kapital in German). He said that capitalism would go away after workers decided to take over the government in a revolution because of the exploitation. There were violent communist revolutions in many countries. Many people were killed because of this. But capitalism did not go away, and most of these communist systems have collapsed and do not exist today, or else they have become more capitalist. Some people think that communism in those countries did not work because Marx's ideas, though nice in thought, did not really work. Others think that communist countries collapsed because of the attacks (military, political and economic) from capitalist countries.

Anarchists (that are not anarcho-capitalists) do not support capitalism either. They do not think there should be any bosses because it is a hierarchy. They think that Marxist–Leninist governments were unsuccessful because they were dictatorships that said that they would rule in the name of workers, but ruled in the name of their leaders. They think that these governments were state capitalist and not socialist.

People who agree

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There are different words for people who support capitalism. In many parts of the world, these people are called either conservatives or liberals. In the United States, the word liberal means someone who supports capitalism but wants some rules on what the market can do and cannot do. Libertarian is a word that in America and some other countries means someone who wants the government to have little or no power to tell people what to buy or sell.

The reasons for capitalism are not just economic. They are political. People who like capitalism believe that capitalism provides liberty by the citizen by allowing them to be independent. Friedrich Hayek agreed with this and connected the open society with respect for the individual, and tolerance for the differences between people.[5]

Another argument for the endorsement of capitalism is that it is arguably better than other economic models, like communism, for example. While most communist nations (such as the Soviet Union and Democratic Kampuchea) collapsed deep in poverty, hunger, dictatorships and/or genocides, capitalist countries (such as the United States and the UK) prospered economically.

People who support capitalism also have disagreements. Most people agree that capitalism works better if the government keeps people from stealing other people's things. If people could steal anything, then nobody would want to buy anything. However, if people shared everything, then no one would need to buy anything.

In most countries, the government does more than that. It tries to make sure that people buy and sell fairly and that employment is fair. But most of the time, the government making sure that employment is fair is also on the benefitting side of capitalism. The government takes money in taxes and spends it according to what the governing body wants, often not what the citizens who elected the governing body want their taxes to be spent on. People in power spend money on guns and ships for the military. When the government is in charge of part of the economy, this is called a "social democracy." However, when the government spends money, it causes arguments about what the money should be spent on, because often times we don't vote on policies, we vote on people we depend on making the policies.

A few people think that people can protect themselves without any government. Instead of having laws against stealing, people could protect their own things, or agree to pay other people such as arbitrators, insurers, and private defenders to protect them. This belief is called "anarcho-capitalism." These people think that the government is trying to take away their earnings, because it takes taxes away from people against their will and keeps them from making agreements between themselves.

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  1. "Capitalism" Archived 2016-08-27 at the Wayback Machine Oxford Dictionaries. "capitalism. an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state." Retrieved 4 January 2013.
  2. Chris Jenks. Core sociological dichotomies. SAGE, 383.
  3. Ekelund R.B. & Tollison R.D. 1980. Mercantilist origins of the corporation. Bell Journal of Economics (The RAND Corporation) 11 (2): 715–720.
  4. Hunt B.C. 1936. The development of the business corporation in England, 1800–1867. Cambridge, MA: Harvard University Press.
  5. Hayek F.A. 1944. The road to serfdom. ISBN 978-0-226-32055-7