Capitalism is an economic system in which the means of production are privately owned and operated for profit, usually in competitive markets. Income in a capitalist system takes at least two forms, profit on the one hand and wages on the other. There is also a tradition that treats rent, income from the control of natural resources, as a third phenomenon distinct from either of those. In any case, profit is what is received, by virtue of control of the tools of production, by those who provide the capital and utilize it so successfully that revenue from resulting products exceeds the costs of production. Often profits are used to expand an enterprise, thus creating more jobs and wealth. Wages are received by those who provide a service to the enterprise, also known as workers, but do not have an ownership stake in it, and are therefore compensated irrespective of whether the enterprise makes a profit or a loss. In the case of profitable enterprise, profits are therefore not translated to workers except at the discretion of the owners, who may or may not receive increased compensation, whereas losses are not translated to workers except at similar discretion manifested by decreased compensation.
There is no consensus on the precise definition of capitalism, nor on how the term should be used as a historical category. There is, however, little controversy that private ownership of the means of production, creation of goods or services for profit in a market, and prices and wages are elements of capitalism. The designation is applied to a variety of historical cases, varying in time, geography, politics and culture. Some define capitalism as a system in which all the means of production are privately owned, and some define it more loosely as one in which merely “most” are in private hands. Ideology further complicates the definition. Classical liberals such as Mises, Rand, and Rothbard define capitalism as a market system with no interference by States (laissez faire), whereas Marxists and other socialists define it to mean an exploitive coalition between the State and capitalists. Some define capitalism as a system governed by capital accumulation regardless of the legal ownership titles.
Private ownership in capitalism implies the right to control property, including the determination of how it is used, who uses it, whether to sell or rent it, and the right to the revenue generated by the property. However, there may be an abandonment period of time, after which resources return to unowned (an therefor homesteadable) status. An economic system that is part capitalist and part socialist or fascist is called a mixed economy.
Economists, political economists and historians have taken different perspectives on the analysis of capitalism. Economists usually emphasize the degree that government does not have control over markets (laissez faire), and on property rights. Most political economists emphasize private property, power relations, wage labor, class and emphasize capitalism as a unique historical formation. There is general agreement that capitalism encourages economic growth. The extent to which different markets are free, as well as the rules defining private property, is a matter of politics and policy, and many states have what are termed mixed economies.
Capitalism, as a deliberate economic system, developed incrementally from the 16th century in Europe, although proto-capitalist organizations existed in the ancient world, and early aspects of merchant capitalism flourished during the Late Middle Ages. Capitalism became dominant in the Western world following the demise of feudalism. Capitalism gradually spread throughout Europe, and in the 19th and 20th centuries, it provided the main means of industrialization throughout much of the world. Today the capitalist system is the world’s dominant economic model.