There are five basic traits that make a capitalistic political and socioeconomic system unique from all other systems: one, private ownership; two, market economy; three, competition; four, profit; and five, stable prices. Capitalism promotes private ownership because capitalists believe that economies grow stronger when people have personal incentive. Within a market economy products are designed for the market and prices are determined through supply and demand. Competition is believed to push economies to be as effective as possible and businesses and people to be as productive as possible. Personal and collective profit provide the dedication and motivation required to be competitive in a market economy.

The second principle of capitalism, market economy, is based upon specialization and division of labor. In theory a fundamental principle of a free market economy is unregulated operation of supply and demand. This is commonly referred to as laissez faire capitalism. In practice, in a democratic society the government plays an indirect role in economic activity by means of the budget, taxation and regulating interest rates. In a market economy the consumer is extremely powerful because he/she controls how much of what will be produced. Consumer demands instead of regulatory bureaucracy dictate what is produced.

Competition is another element of a market economy. The theory of capitalism states that competition between nations forces economies to be as productive as possible and businesses and workers within these economies to be productive as well. As previously mentioned profit provides the incentive for maximizing productivity.

The last two elements of capitalism are profit and stable prices. People have the best opportunity of becoming wealthy under a capitalist economy because it guarantees three freedoms not usually found under other systems. These freedoms are freedom of trade and occupation, freedom of property, and freedom of contract. Capitalism would not survive if inflation was able to overrun stable prices.

History has shown a connection between capitalism and democracy. Capitalism is an economic activity that is based on freedom of choice. Capitalism has created phenomenal worldwide wealth. Capitalist countries dominate the world’s economy. The productivity of capitalist nations has led to the development of many technological advances and far exceeds the productivity of non-capitalist nations. Democracy and capitalism are connected because democracy cannot develop and exist unless capitalism is developed first. Another link between capitalism and democracy is the strong emphasis on the importance of individual rights and freedoms versus collective and social ideals.

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