Capitalism is one type of economic system, which means it tells us how business and money are handled in a certain country or part of the world. The word capital is used to talk about something that is valuable. It could be property, a possession, a business, or an industry. In a Capitalist society, capital is owned and controlled by individuals or groups of people.
This is different from other economies where the government controls everything, or where everyone shares everything equally, which is the ideal in Communism.
With Capitalism people can decide to buy and sell things without getting the permission of the government. Business happens only between people who want to sell things and people who want to buy things.
If a person has something they want to sell, like a loaf of bread, they can decide how much they want to sell it for. If they choose a high price and someone wants to buy it, they will make a lot of money. However, if someone else is selling bread for a cheaper price, people will probably choose the cheaper bread. The person selling the more expensive bread will either have to drop the price or make tastier bread to get customers back.
This is just one example in Capitalism where the market (the customers in a certain place) helps control business. When businesses compete with each other, customers have choices and they can pick which option they like best.
When customers don't have choices, it can be a difficult situation. Imagine that all the drinkable water came from only one lake, and one person owned that lake. That person could charge $1000 for a cup of water and people would pay it because water is something everyone needs. That person would make a lot of money! Of course most people would think he or she was a very mean person. And a lot of people wouldn't be able to afford that water at all!
When one person or a small group of people controls an entire industry, it is called a monopoly. Without any government involvement, situations like that can get out of control, and customers may be abused or treated unfairly.
Have you ever played or watched grown-ups play the game Monopoly? The game uses many ideas of Capitalism in how it's played. People buy property (they gain capital), and they charge other people to use their property.
Whoever controls all or most of the properties wins. They have a monopoly and the other players cannot succeed""which would be a pretty rotten situation in real life. Luckily, it's just paper money!
Try playing the game, and see what pieces of the "real world" economy make their way onto the game board.
The United States' Economy
Many people talk about the United States as a Capitalist country. While it is much more Capitalist than Communist, it is actually a mixed economy. This means that the government has some control over business.
Many cities have public transportation. That's a government-provided alternative to buying a car or other means of transportation.
Public schools are run by government programs for students and their parents who choose not to pay for private school.
The government also sets a minimum wage, which means that bosses have to pay their employees a certain amount of money. That way, workers are less likely to be taken advantage of.
The government can also provide money to "bail out" failing businesses, and then it controls how that money is used. These bailouts have been in the news a lot lately.
And the government has a say in what products can be sold and can put restrictions on who can buy certain products - for example alcohol.