capitalism

capitalism A system of economic organization, based on market competition, under which the means of production, distribution, and exchange are privately owned and directed by individuals or corporations. All human production requires both labour and capital. In a capitalist system, capital is supplied either by the single owner of a firm, or by shareholders in the case of a joint-stock company. Labour is supplied separately by employees who receive a wage or salary. The residual profit of the firm after wages and costs have been paid accrues to the owners of the capital. Firms compete with one another to sell to customers in what is primarily a free market. In its most developed form capitalism, which is based on the principle that economic decisions should be taken by private individuals, restricts the role of the state in economic policy to the minimum. It thus stands for FREE TRADE. In the 20th century capitalist societies have been modified in various ways: often a capitalist economy is accompanied by the development of a WELFARE STATE and is therefore known as ‘welfare capitalism’ as in western Europe. Another development is the mixed economy, in which the production of certain goods or services is nationalized, while the rest of the economy remains in private ownership. A trend in 20th-century capitalism, particularly since World War II, has been the growth of multinational companies operating across national frontiers, often controlling greater economic resources than small- or medium-sized states.