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9 Characteristics of Capitalism

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Capitalism is an economic system based on private ownership of the means of production. The following are the primary characteristics of capitalism.

Private Ownership

Capitalism is based on property rights and the principle that the government should leave economic production to the private sector.

Capital Accumulation

Capitalism is a competitive system whereby capital is accumulated by individuals who are successful in the market. This is intended to give individuals incentives to work, innovate and improve things.

Capital Concentration

In a capitalist system, capital typically becomes concentrated such that a relative small number of people, known as a capitalist class, own much of the property in a nation.

Voluntary Participation

Capitalism is based on a system of voluntary participation whereby you are free to start any company you imagine or pursue any career you desire.

Free Markets

Economic decisions are made by the market as opposed to a government. Market participants freely decide how to allocate capital and what prices to set for goods. This can be contrasted with systems of government control where the government decides what will be produced and how much it will cost.

Wage Labor

In a capitalist system, much of the capital is usually owned by a small capitalist class. Most people in a capitalist system offer their labor to the market to earn a living. This group is known as the working class. Wages are set by supply and demand and people may pursue education and self improvement to achieve higher wages by becoming qualified for professions that are in high demand.


Capitalism relies on intensive competition to allocate resources efficiently, improve things and lower prices. If the government interferes in the market by preferring one firm over another, competition can break down. Likewise, if a firm becomes extremely large it begins to resemble a government that controls an entire industry without competition. Governments play a role in designing and enforcing rules to keep competition alive.

Welfare Capitalism

A pure form of capitalism, known as laissez-faire capitalism is a survival of the fittest system where the government plays no role in the economy. This is exceeding rare. In practice, governments impose regulations, taxes, tariffs and subsidies. Ideally, this is all designed for the good of the public to raise the quality of life of a nation. For example, a government can tax the capitalist class to provide a basic quality of life for all residents in areas such as education, infrastructure, transportation and healthcare. A government can also protect consumers, workers and the environment by regulating businesses.

Goods & Bads

An economic good is an output of the economy that has value to people. An economic bad is an undesirable output of the economy such as pollution. Historically, capital systems give market participants strong incentives to produce economic goods but may give few incentives to prevent economic bads. Many of the criticisms of capitalism stem from the economic bads created by capitalist economies.
Overview: Capitalism
An economic system that relies on the private sector to run and own the economy.
Gives people strong incentives to be productive, efficient and to improve things. Tends to result in economic growth and improvement in standard of living.
Can result in a high concentration of wealth in the hands of a relatively small group of people. Produces economic bads and may have few incentives to prevent such bads. Government policy can mitigate these issues with regulations, taxation and spending programs that are designed to improve quality of life and reduce economic bads.
Related Concepts
Next: Capitalist Realism
More about capitalism:
Capitalist Realism
Crony Capitalism
Economic Bad
Economic Freedoms
Economic Rights
Political Economy
Pros and Cons
Quality Of Life
Rent Seeking
Social Ideology
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