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18th-century Scottish philosopher Adam Smith is widely considered the forefather of capitalism.
Capitalism is an economic system in which individuals and private parties control the means of production and profits are the key driver of economic activity. You’ll find some form of capitalism in virtually every modern economy. Understanding how capitalism works is key to understanding business, markets, and the economy in general.
Capitalism is an economic system in which profit-driven private actors, rather than the government, control economic activity. The laws of supply and demand drive the production, pricing, and distribution of goods and services. Although you’ll find elements of capitalism in most economies around the world today, no purely capitalistic society has ever existed. Free-market activity exists, but government intervenes to various degrees.
Adam Smith, the 18th-century Scottish philosopher who penned An Inquiry into the Nature and Causes of the Wealth of Nations, is widely considered the forefather of capitalism. However, Smith never used the word capitalism in his writings, using the phrase commercial enterprise instead. Capitalism didn’t become a widely used term until the late 19th century.
Capitalism is an economic system based on private property ownership, competition, and limited government; socialism is a system in which government plays a central role in controlling the means of production and resources, along with providing for the basic well-being of its citizens.
Some defining characteristics of capitalism include:
Your perspective on the merits of capitalism and whether the advantages outweigh the disadvantages are likely tied to your political leanings. Here are a few of the commonly cited pros and cons of capitalism.
Capitalism and socialism are often presented as opposing schools of thought. In reality, however, many modern economies feature elements of both.
For instance, the United States is widely seen as a capitalist country. The ability to earn profits, seek better opportunities, and own private property are defining features of the American dream. However, the U.S. is actually a mixed market economy, meaning it has characteristics of both capitalism and socialism. For example, the U.S. government builds roads and other infrastructure, provides universal education for K-12 students, and offers basic safety nets, like Supplemental Security Income (SSI) and Medicaid.
