Capitalism generally refers to an economic system where the
means of production are largely or entirely
privately owned and operated for a profit, structured on the process of
capital accumulation. In general, in capitalist systems investment, distribution, income, and prices are determined by markets, whether regulated or unregulated.
There are different variations of capitalism with different relationships to markets. In
free market variations of capitalism, markets are utilized most extensively with minimal or no state intervention and regulation over prices and the supply of goods and services. In
welfare capitalism and mixed economies, markets continue to play a dominant role but are regulated to some extent by government in order to correct
market failures or to promote social welfare. In
state capitalist systems, markets are relied upon the least, with the state relying heavily on either
indirect economic planning and/or
state-owned enterprises to accumulate capital.
Capitalism has been dominant in the Western world since the end of
feudalism, but most feel that the term "mixed economies" more precisely describes most contemporary economies, due to their containing both private-owned and state-owned enterprises. In capitalism, prices determine the demand-supply scale. For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.
Laissez-faire is synonymous with what was referred to as strict
free market economy during the early and mid-19th century as a
classical liberal (
right-libertarian) ideal to achieve. It is generally understood that the necessary components for the functioning of an idealized free market include the complete absence of government regulation, subsidies, artificial price pressures, and government-granted monopolies (usually classified as
coercive monopoly by free market advocates) and no taxes or tariffs other than what is necessary for the government to provide protection from coercion and theft, maintaining peace and property rights, and providing for basic public goods. Right-libertarian advocates of
anarcho-capitalism see the state as morally
illegitimate and economically unnecessary and destructive.
Free-market economy refers to an economic system where prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy. It typically entails support for highly competitive markets, private ownership of productive enterprises. Laissez-faire is a more extensive form of free-market economy where the role of the state is limited to protecting
Welfare capitalism refers to a capitalist economy that includes public policies favoring extensive provisions for social welfare services. The economic mechanism involves a free market and the predominance of privately owned enterprises in the economy, but public provision of universal welfare services aimed at enhancing individual autonomy and maximizing equality. Examples of contemporary welfare capitalism include the
Nordic model of capitalism predominant in Northern Europe.
Anglo-Saxon capitalism refers to the form of capitalism predominant in Anglophone countries and typified by the
economy of the United States. It is contrasted with European models of capitalism such as the continental
Social market model and the
Nordic model. Anglo-Saxon capitalism refers to a macroeconomic policy regime and capital market structure common to the Anglophone economies. Among these characteristics are low rates of taxation, more open
financial markets, lower labor market protections, and a less generous
welfare state eschewing
collective bargaining schemes found in the continental and northern European models of capitalism.
East Asian model
The East Asian model of capitalism involves a strong role for state investment, and in some instances involves state-owned enterprises. The state takes an active role in promoting economic development through subsidies, the facilitation of "national champions", and an export-based model of growth. The actual practice of this model varies by country. This designation has been applied to the economies of Singapore, Japan, Taiwan, South Korea and the People's Republic of China.
A related concept in political science is the
Social market economy
This model was implemented by
Alfred Müller-Armack and
Ludwig Erhard after
World War II in
West Germany. The social market economic model (sometimes called "Rhine capitalism") is based upon the idea of realizing the benefits of a free market economy, especially economic performance and high supply of goods, while avoiding disadvantages such as
market failure, destructive competition, concentration of economic power and the socially harmful effects of market processes. The aim of the social market economy is to realize greatest prosperity combined with best possible social security. One difference from the free market economy is that the state is not passive, but takes active
 The social policy objectives include employment, housing and education policies, as well as a socio-politically motivated balancing of the distribution of income growth. Characteristics of social market economies are a strong
competition policy and a
contractionary monetary policy. The philosophical background is