chapter
39 Pages

C

Capitalism is a form of economic organization in which the means of production are in private hands and individuals are free to sell their labour at a price determined by an impersonal market. The goods and services that are produced reflect the desires of consumers (who are assumed to be autonomous) and producers are motivated to satisfy those by the prospect of a positive return on their investment. Laissez-faire is associated with capitalism in the sense that under it little or no state intervention is permitted to modify the outcomes of a competitive process. A capitalist system has three factors of production: capital, labour, and land. Capital consists of funds which (when invested) earn interest; labour earns a wage equal to its marginal product; land earns a rental income determined by its scarcity value. Entrepreneurship, although a crucial feature of a capitalist market system, has always been difficult to classify in economics. In theory it is sensitivity to a profitable opportunity (i.e. a price differential), and successful entrepreneurship does not depend upon the ownership of capital. The reward for entrepreneurship is profit; which is not the same as the interest paid to capital.