Capitalism facts for kids
Capitalism is an economic system where people and businesses own most of the things that make goods and services. They use these things to make a profit. In capitalism, people can own land, factories, and tools. They can also decide what to produce and how much to charge for it.
A key part of capitalism is that people can buy and sell things freely. They don't need special permission from the government for every trade. This system encourages competition among businesses. It also lets people choose where they want to work and what they want to buy. Most countries today have a mixed economy. This means they use ideas from capitalism but also have some government rules and services.
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What is Capital?
The word capital means things that help produce more things or money. For example, land, factories, shops, tools, and machines are capital. If someone has money they can invest, that money is also capital. People who own a lot of capital are sometimes called capitalists.
What is Capitalism About?
Capitalism is an economic system where individuals and private businesses own the means of production. This means they own the factories, tools, and land used to make things. They operate these for profit. In this system, people can freely buy, sell, and trade goods and services.
What Are the Main Features of Capitalism?
Capitalism has several key features that make it work:
Making Money Grow: Capital Accumulation
Capital accumulation is about investing money to make even more money. Investing is very important in capitalism. People who start businesses or invest in them can make a lot of money. A business sells things that people want. The investors make extra money, which is called profit. Investors can use their profit to invest in more businesses. They can also make their current businesses bigger. If businesses are successful, investors can get more and more profit.
This continuous process of investing and growing wealth is a core part of the system.
Producing Goods for Sale: Commodity Production
In capitalism, most goods and services are produced to be sold in a market. The goal is to maximize their exchange-value (how much they can be sold for), rather than just their use-value (how useful they are).
Buying and Selling: Markets and Competition
Markets are places where buyers and sellers meet to exchange goods and services. In a capitalist system, markets are very important for deciding prices.
- Competition happens when many businesses try to sell similar products to the same buyers. This often leads to new ideas and lower prices for consumers.
- Sometimes, one company might become so big that it has a monopoly and controls an entire market. Governments often have rules to prevent monopolies and ensure fair competition.
Working for Pay: Wage Labor
Wage labor means people work for an employer and get paid a wage or salary. This is a key part of capitalism, where workers sell their skills and time in exchange for money. The products they create usually belong to the employer.
The Desire for Profit: Profit Motive
The profit motive is the idea that businesses want to earn money. They aim to make as much profit as possible for themselves or their owners. This desire for profit helps ensure that resources are used efficiently, as businesses try to avoid wasting resources on things that won't sell.
Owning Things: Private Property
Private property means that individuals or private companies own most of the land, factories, and other resources used to produce goods. Governments usually protect these property rights through laws. This allows owners to use their property to make a profit.
Different Kinds of Capitalism
Capitalism comes in many forms around the world, depending on the country and its policies. However, all types share the main ideas of private ownership, making goods for profit, and using markets to decide how resources are used.
Free Market Capitalism
In free market capitalism, prices are set almost entirely by supply and demand, with very little government involvement. People who support this idea believe that markets work best when left alone. Laissez-faire capitalism is an even stricter form, where the government's role is only to protect property rights.
Mixed Economies and Welfare Capitalism
Most modern capitalist economies are mixed economies. This means they combine private ownership and free markets with some government involvement.
- Governments might regulate markets to fix problems, protect the environment, or provide public services.
- Welfare capitalism is a type of mixed economy where the government provides important services like social security, healthcare, and unemployment benefits. This model is common in many European countries and Japan.
State Capitalism
State capitalism is an economic system where the government owns and controls many businesses, but these businesses still operate to make a profit in a market. The government has a big influence on the economy, either by owning companies directly or by giving them support. Some countries in East Asia and Norway are examples of this.
How Capitalism Grew Over Time
Capitalism has a long and interesting history. It started to grow in Europe many centuries ago. Early forms involved merchants trading goods for profit.
Early Beginnings and Trade
Capital has existed in small ways for a long time. People traded goods and lent money. During the Islamic Golden Age, Arab traders used ideas like free trade and banking. They also used Indo-Arabic numerals for keeping records. These ideas later traveled to Europe through cities like Venice.
Changes in Farming
In the 16th century, farming in England began to change. Large pieces of land became owned by fewer people. Instead of working as serfs, farm workers were paid wages. This system encouraged landowners and workers to increase farm productivity. Everyone wanted to make a profit.
The Rise of Merchants and Nations
From the 16th to 18th centuries, a system called mercantilism was popular. Countries wanted to become rich by trading. They tried to sell more goods to other countries than they bought. This helped European nations explore new lands. Merchants made profits by buying and selling goods. Governments often supported these traders with special rules.
The Industrial Revolution and Modern Factories
In the mid-18th century, the Industrial Revolution began. This was a huge change in how things were made. Factories became common, using machines like the Watt steam engine. Many people moved to cities to work in these factories. This period established capitalism as a major way of producing goods. It also led to a complex system where different workers did different tasks.
Capitalism Spreads Worldwide
In the 19th and 20th centuries, capitalism spread globally. This happened through globalization, where countries became more connected. New technologies like the telegraph and steamships helped goods and information move faster. After World War II, governments often played a bigger role in economies. They regulated markets more to help people and the economy. Later, starting in the 1980s, there was a trend back towards less government regulation.
Today, most capitalist economies are "mixed economies." This means they combine free markets with some government involvement.
Different Views on Capitalism
Not everyone agrees about capitalism. Some people think it's the best system, while others have concerns.
People Who Disagree
Socialists and communists do not fully support capitalism. They say it can hurt workers. They believe businesses make more money by selling things than they pay the workers who make them. They argue that business owners become rich while workers stay poor. They also think society would be better if people worked together instead of competing.
Karl Marx was a famous communist philosopher from Germany. He wrote a famous book called Das Kapital. He believed that capitalism would eventually lead to workers taking over the government. However, capitalism did not go away. Most communist systems that tried to follow Marx's ideas have changed or collapsed.
People Who Agree
People who support capitalism often believe it offers liberty. They think it allows people to be independent. Friedrich Hayek agreed with this. He said that an open society respects individuals and their differences.
Most supporters agree that capitalism works best when the government prevents stealing. If people could steal anything, no one would want to buy things. In most countries, the government also tries to ensure fair buying, selling, and employment.
Some people, called "anarcho-capitalists", believe there should be no government at all. They think people can protect their own things or pay others to do it. They believe the government takes away earnings through taxes against people's will.
Related Pages
See also
In Spanish: Capitalismo para niños
 | William M. Jackson |
 | Juan E. Gilbert |
 | Neil deGrasse Tyson |
