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Money and Finance


Capitalism is a type of economic system where business is privately owned and run by the people, rather than by the government. This is different from a command economy like communism where the government controls business.

Free Market

Another name for capitalism is the free-market system. The "free" in free-market system means that the market is free to work itself out without government intervention. Businesses can decide what products to make and how much to sell them for. People can decide what products to buy and how much they want to pay.

Supply and Demand

One of the basic ideas of capitalism is the idea of supply and demand. Supply and demand says that the price of a product will eventually settle at a point where the demand for a product will equal the supply of a product. This way the market will find the perfect price and volume of a product. This is different from a command economy where the government might set the price and volume of a product.

Adam Smith

The idea of the free-market system was first introduced by Scottish economist Adam Smith in 1776. He wrote a book called The Wealth of Nations that described how a free-market economy would work. He said that government should stay out of the economy and let pure competition determine pricing and products.

Modern Capitalism

Modern capitalism is somewhat different than what Adam Smith described. Today, many countries have a capitalist economy, but the government takes an active role in stabilizing the economy and providing regulations to protect the public. This type of economy is called a mixed economy.

For example, the United States is considered a capitalist economy. However, the government has all sorts of laws to monitor businesses and the economy. There are laws against monopolies, regulations to make workplaces safe, anti-discrimination laws, regulations to protect the environment, taxes to redistribute wealth, and Social Security to help the elderly. Although much of the economy is run on capitalism, the government is very much involved.

Pros of Capitalism Cons of Capitalism

A mixed system of capitalism with some government intervention can enable economic growth, freedom, innovation, and efficiency. Government intervention is needed to prevent monopolies, social inequality, and poor labor conditions.

Interesting Facts About Capitalism

Learn More about Money and Finance:

Personal Finance

Filling out a Check
Managing a Checkbook
How to Save
Credit Cards
How a Mortgage Works
How Interest Works
Insurance Basics
Identity Theft

About Money

History of Money
How Coins are Made
How Paper Money is Made
Counterfeit Money
United States Currency
World Currencies
Money Math

Counting Money
Making Change
Basic Money Math
Money Word Problems: Addition and Subtraction
Money Word Problems: Multiplication and Addition
Money Word Problems: Interest and Percent


How Banks Work
How the Stock Market Works
Supply and Demand
Supply and Demand Examples
Economic Cycle
Adam Smith
How Taxes Work
Glossary and Terms

Note: This information is not to be used for individual legal, tax, or investment advice. You should always contact a professional financial or tax advisor before making financial decisions.

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