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Capitalism is a free market economic system based on private ownership and entrepreneurship. The investment of capital, and production, distribution, income, and prices are determined not by government (as in socialism) but through the operation of a competitive market where decisions are voluntary and private rather than regulated and mandated by government (see law of supply and demand).



One self-regulating feature of capitalism is competition, which helps maintain fair market value for goods and services. However, unrestrained or pure capitalism may sometimes create a positive feedback loop in which a small number of individual accumulations of capital grow ever larger, eventually becoming so few as to limit effective competition, thus ceasing to strictly be free-market capitalism. In this regard, pure capitalism is unstable. Modern political systems have developed regulation mechanisms in an attempt to render capitalism more stable, including anti-trust regulation, trade tariffs, etc.

Since the fall of communism, and the advent of information technology, capitalism is becoming increasingly widespread.

Adam Smith described the operation of capital accumulation through the productive powers of labor as such, "Whatever a person saves from his revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner." [1]


“Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.”

"Underlying most arguments against the free market is a lack of belief in freedom itself." --Milton Friedman, Capitalism and Freedom, 1962.

"If an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another." --Milton Friedman, Free to Choose

“Capitalism is essentially the economic system of poor people. That’s what allowed the people that came from humble origins of the world to have economic rights the way only nobility and the high bourgeoisie had it before. So capitalism is essentially a tool for poor people to prosper.” --Hernando de Soto, PBS Interview, March 30-31, 2001

(cf: Values - Free Enterprise)

"The only real cure for poverty is production". Henry Hazlitt, from Man vs. the Welfare State.

"The first condition for the establishment of perpetual peace is the general adoption of the principles of laissez-faire capitalism." --Ludwig von Mises, The Ultimate Foundation of Economic Science

"There are two methods, or means, and only two, whereby man's needs and desires can be satisfied. One is the production and exchange of wealth; this is the economic means. The other is the uncompensated appropriation of wealth produced by others; this is the political means." -- Albert Jay Nock, Our enemy, the State

"Businessmen are the symbol of a free society — the symbol of America." -- Ayn Rand

See also


  1. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book II, Chapter 3, Paragraph 15, Of the Accumulation of Capital, or of Productive and Unproductive Labour, First Edition 1776.

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