Capitalism - is the economic system based upon private property and the market in which, in principle, individuals decide how, what and for whom to produce. Under capitalism, individuals are encouraged to follow their own self-interest, while market forces of supply and demand are relied upon to coordinate those individuals pursuits. Distribution of goods is to each individual according to his or her ability, effort, and inherited property.
Reliance upon market forces doesn't mean that political, social and historical forces play no role in coordinating economic decisions. These other forces do influence how the market works. For example, for a market to exist, government must allocate and defend private property rights - the control a private individual or firm has over an asset or a right. The concept of private ownership must exist and must be accepted by individuals in society.
Markets work through a system of rewards and payments. If you do something you get paid for doing that something; if you take something, you pay for that something. How much you get is determined by how much you give. This relationship seems fair to most people. But there are instances when it doesn't seem fair. Say someone is unable to work. Should that person get nothing?
In capitalism individuals are encouraged to follow their self-interest. In capitalist economies, individuals are free to do whatever they want as long as it's legal. The market is relied upon to see that what people want to get, and want to do, is consistent with what's available. Price is the mechanism through which peoples desires are coordinated and goods are rationed. If there is not enough of something to go around, its price goes up; if more of something needs to get done, the price given to individuals willing to do it goes up. If something isn't wanted or doesn't need to be done, its price goes down. Under capitalism, fluctuations in prices play a central role in coordinating individuals wants.
By almost all accounts, capitalism has been an extraordinary successful economic system.
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