Capitalism Law and Legal Definition

Capitalism is an economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market. In a capitalist economy, personal profit can be acquired through investment of capital and employment of labor. The concept of free enterprise is the cornerstone of capitalism, which believes that the laws of supply and demand with minimal government intervention is will ultimately maximize consumer welfare.

However, capitalism has required government intervention to curb its abuses, which have ranged from slavery to monopoly cartels and financial fraud, and government assistance through subsidies, tax credits, incentives, and other types of exemptions. Capitalism and the free enterprise principles behind it are in contrast to other economies, such as those in Germany and Japan, which incorporates private production within centrally planned industrial policies in which bankers, industrialists, and labor unions meet and seek to agree to wage policies and interest rates. The collapse of the Soviet Union and its satellite states in Eastern Europe (1989-91) represented a substantial retreat in the power of the socialist economic system. China's communist economy has also recently seen influences of capitalism.