Economic theories explained: What is capitalism?

Stock market traderSome people love it, some hate it, and it is the economic system under which we live in the UK.

But do you really understand how capitalism works? We explain the ins and outs of a capitalist economy and investigate its pros and cons.

The definition of capitalism
According to the Oxford Dictionary, capitalism is an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

How capitalism works
In a capitalist economy, investors are free to buy, sell, produce, and distribute goods and services with at most limited government control, at prices determined primarily by a competitive, free market.

The central elements of capitalism, which is now the dominant economic system worldwide, include capital accumulation and a pricing system.

The history of capitalism
Following the demise of feudalism (characterised by powerless peasants, or serfs, working the land for their feudal lords) in the 15th Century, capitalism became the most common economic system in Europe.

The different kinds of capitalism
Various forms of capitalism have been tried throughout the years. These include laissez-faire capitalism, in which the government essentially leaves the economy and the population to find their own way, and welfare capitalism, which involves greater state intervention, for example, to help those struggling financially and to regulate to prevent monopolies.

The arguments for and against capitalism
Fans of capitalism claim that it is the greatest wealth-producing system known to man, and that it brings significant benefits for the working man.

But critics of the system associate it with economic instability and argue that it fails to create a level playing field for people of all backgrounds.

What do you think? Is capitalism working? Or does it just help the rich get richer?

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