What is capitalism?
The nutshell
Capitalism is an economic system. Most businesses are owned by private people and firms, not by the government. These businesses make and sell things to earn a profit. Prices come from what buyers want and what sellers offer.
Every fact on this page comes from non-partisan bodies and reference works. Each source tag — like IMF — opens where a fact comes from.
The basics
What capitalism means
Capitalism is a way of running a country's economy. Most businesses — like shops, factories and farms — are owned by private people and firms, not by the government.IMF Each business is run to make a profit, which is the money left after costs are paid. A business pays wages to the people who work for it.EB
How prices are set
In this kind of system, prices are not fixed by the government. Instead, prices come fromsupply and demand — what buyers want to buy and what sellers can offer.BoE When many people want something that is scarce, its price tends to rise. When few people want it, the price tends to fall.
Capitalism and the government
In real life, no large country runs on private markets alone. The UK has amixed economy — mostly private business, plus services the state provides, like the NHS and state schools, and rules that businesses must follow. The House of Commons Library records that industries and services in the UK can be owned by either the public or the private sector, and that the balance has changed over time.HoC
The main alternative
Capitalism is often set against socialism. The IMF describes socialism as a system where the state owns the main businesses and machines, called the means of production, and aims for the good of society rather than for profit.IMF
- Competition between businesses can push prices down and bring new and better products
- Owners keep the profit a business earns, which can reward hard work and encourage new investment
- What people choose to buy guides what gets made, so unpopular products tend to disappear
- Market outcomes can leave a wide gap between the richest and the poorest
- Some things people value, like clean air or fair treatment, may not be provided well by markets alone
- Wealth and economic power can build up in the hands of a few large owners
The deep end6 min
What capitalism is, in full
Capitalism is an economic system built on private property, the profit motive and market competition. The IMF's Back to Basics guide describes it as a system where private actors own and control capital — assets such as factories, mines and railways — labour is bought for money wages, and supply and demand set prices in markets.IMF Encyclopaedia Britannica gives a similar account: private ownership of the means of production, with the production and pricing of goods dictated mainly by market forces rather than central planning.EB
Where the idea comes from
Encyclopaedia Britannica traces modern capitalist theory to the eighteenth-century book An Inquiry into the Nature and Causes of the Wealth of Nations, by the Scottish economist Adam Smith, published in 1776, though it notes that earlier pockets of capitalism existed in medieval Europe.EB
Pure capitalism is rare
In practice, few countries sit at either extreme. The Bank of England's explainer contrasts economies where the government decides what to produce, how much and for whom, with market-based economies where those choices come from supply and demand.BoE Most modern countries, including the UK, fall in between as a mixed economy. The House of Commons Library records that UK industries and services can be owned by the public or the private sector, through models such as full nationalisation, regulated privatisation and municipal ownership, and that the balance has shifted over time.HoC
What each side argues
Whether capitalism is a good way to run an economy is a contested question, answered differently across the political spectrum. Supporters argue that competition drives lower prices, more choice and new ideas, and that the chance of profit rewards effort and investment. The IMF's guide argues that free markets, while not perfect, are probably the best way to organise an economy.IMF
Critics argue that markets left alone can widen the gap between rich and poor, can under-provide things that are hard to sell for profit, such as clean air, and can let wealth and power concentrate. The House of Commons Library sets out the long-running UK debate over whether key industries and services should be publicly or privately owned, in which those arguments are made on each side.HoC Get Unspun takes no side in that debate. The topics on the left and right spectrum and the political compass show where these views tend to sit.