Which economic system is based on private ownership of the means of production and distribution of goods?

cap·​i·​tal·​ism | \ ˈka-pə-tə-ˌliz-əm

Definition of capitalism

: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

Communism, Socialism, Capitalism, and Democracy

Communism, socialism, capitalism, and democracy are all among our top all-time lookups, and user comments suggest that this is because they are complex, abstract terms often used in opaque ways. They're frequently compared and contrasted, with communism sometimes equated with socialism, and democracy and capitalism frequently linked.

Part of the confusion stems from the fact that the word communism has been applied to varying political systems over time. When it was first used in English prose in the mid-19th century, communism referred to an economic and political theory that advocated the elimination of private property and the common sharing of all resources among a group of people; in this use, it was often used interchangeably with the word socialism by 19th-century writers.

The differences between communism and socialism are still debated, but generally English speakers use communism to talk about the political and economic ideologies that find their origin in Karl Marx’s theory of revolutionary socialism, which advocates a proletariat overthrow of capitalist structures within a society; societal and communal ownership and governance of the means of production; and the eventual establishment of a classless society. The most well-known expression of Marx’s theories is the 20th-century Bolshevism of the U.S.S.R., in which the state, through a single authoritarian party, controlled a society’s economic and social activities with the goal of realizing Marx’s theories. Socialism, meanwhile, is most often used in modern English to refer to a system of social organization in which private property and the distribution of income are subject to social control. (The term is also often used in the phrase democratic socialism, which is discussed here.)

Communism and socialism are both frequently contrasted with capitalism and democracy, though these can be false equivalencies depending on the usage. Capitalism refers to an economic system in which a society’s means of production are held by private individuals or organizations, not the government, and where products, prices, and the distribution of goods are determined mainly by competition in a free market. As an economic system, it can be contrasted with the economic system of communism, though as we have noted, the word communism is used of both political and economic systems. Democracy refers not to an economic system but to a system of government in which supreme power is vested in the people and exercised through a system of direct or indirect representation which is decided through periodic free elections. (For discussion about whether the United States is accurately described as a democracy or as a republic, see the article here.)

Readers should consult the individual entries for a full treatment of the various ways in which each of these four words is used.

Did you know?

Capital is wealth—that is, money and goods—that's used to produce more wealth. Capitalism is practiced enthusiastically by capitalists, people who use capital to increase production and make more goods and money. Capitalism works by encouraging competition in a fair and open market. Its opposite is often said to be socialism. Where a capitalist economy encourages private actions and ownership, socialism prefers public or government ownership and control of parts of the economy. In a pure capitalist system, there would be no public schools or public parks, no government programs such as Social Security and Medicare, and maybe not even any public highways or police. In a pure socialist system, there wouldn't be any private corporations. In other words, there's just about no such thing as pure capitalism or pure socialism in the modern world.

Examples of capitalism in a Sentence

Capitalism is at once far too rational, trusting in nothing that it cannot weigh and measure, and far too little as well, accumulating wealth as an end in itself. — Terry Eagleton, Harper's, March 2005 The United States has assumed a global burden—not just fighting terrorism and rogue states, but spreading the benefits of capitalism and democracy … — Brian Urquhart, New York Review Of Books, 9 Oct. 2003 The city was then the great maw of American capitalism. — Christopher Hitchens, Atlantic, August 2002 I am not the first to point out that capitalism, having defeated Communism, now seems to be about to do the same to democracy. The market is doing splendidly, yet we are not, somehow. — Ian Frazier, On The Rez, 2000 Even Cuba's famed health-care system has been unable to resist the siren song of capitalism. The Frank Pais Hospital … now offers "for pay" surgery to foreigners. — Ann Louise Bardach, Vanity Fair, March 1995

Recent Examples on the Web Critics of free-market capitalism have observed that the pleasures of freedom are not equally available to all. — Louise Perry, WSJ, 19 Aug. 2022 The core principle of customer capitalism is simple. — Steve Denning, Forbes, 12 June 2022 Guilt around your good fortune will not change the failures of late stage capitalism. — Roxane Gay, New York Times, 6 May 2022 Who says fashion is a frivolous obsession of a distorted and depraved celebrity culture, a symbol of late-stage capitalism? — Rob Long, National Review, 16 Sep. 2021 Millennials and members of Generation Z — a cohort born into the spoils of modern day capitalism — have notably gravitated to the Democratic Socialism of Bernie Sanders like coins to a magnet. — Isaac Lozano, San Diego Union-Tribune, 19 Aug. 2021 Polls show more than half of 18- to 24-year-olds in the U.S. have a negative view of capitalism. — Andy Kessler, WSJ, 2 Oct. 2022 It’s not, however, a linear tale of traditionally white spaces eventually welcoming Black newcomers but one of push and pull, of appropriation and cross-fertilization, of the inevitabilities of capitalism. — Zandile Blay, Robb Report, 1 Oct. 2022 Companies that create the next model of capitalism through deep commitment to purpose will attract more investment, better employees, and deeper customer loyalty. — Andrew Weaver, Outside Online, 14 Sep. 2022 See More

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'capitalism.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of capitalism

1833, in the meaning defined above

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Cite this Entry

“Capitalism.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/capitalism. Accessed 23 Oct. 2022.

More Definitions for capitalism

cap·​i·​tal·​ism | \ ˈkap-ət-ᵊl-ˌiz-əm , ˈkap-tᵊl- \

Kids Definition of capitalism

: an economic system in which resources and means of production are privately owned and prices, production, and the distribution of goods are determined mainly by competition in a free market

Other Words from capitalism

capitalist \ -​əst \ or capitalistic \ ˌkap-​ət-​ᵊl-​ˈis-​tik , ˌkap-​tᵊl-​ \ adjective

capitalistically \ -​ti-​k(ə-​)lē \ adverb

What is the economic system based on collective ownership of the means of production?

What economic system has both private and public ownership?