Let me start off what capitalism isn't! Capitalism isn't about money it's about freedon - the freedom to try and fail that made the US the richest industrial nation in the world by 1905 and the freedom that has kept us there ever since.
Capitalism is a socio-economic system in which private ownership means profit to the owner. The owner controls the means of production, so the profit belongs to the private business owner. In capitalism, the free market determines the production, distribution and price of goods and services.
A free market is unregulated supply and demand with little government interference in matters of trade. Price agreements are made by buyers and sellers and the market dictates supply and demand. Competition policies may exist in a free market capitalist system.
Capitalistic competition policies are usually based on the efficiency of economic feasibility, while socialistic competition policies are often concerned with unity in a single competitive market. The opposite of a free market is a controlled market. The government controls supply and the price of goods and services.
Capitalism began in seventeenth century Europe and is associated with the European Enlightenment. The European Enlightenment focused on the idea of individual freedom to pursue one's own economic interests in order to make a profit. Capitalism realizes a profit through the means of production together with labor to produce the goods.
The labor in a capitalist system is called wage labor as wages must be paid to the laborers. The means of production means everything else required to produce goods including land and the property rights to it. Businesses run on capital and capital is what capitalists have. Capital is items of value that can produce more wealth.
Capitalism is considered a socio-economic system as it is not just a way of earning money and making a living, but is also a way of thinking about social organization. Capitalism is based on the idea of individualism and that individuals have the right to economic freedom. Communism is considered the opposite of capitalism as it is based on collectivism and shared wealth rather than individualism and individual wealth.
It's important to note the existence of laissez-faire capitalism and its later replacement by the Keynesian system. Laissez-faire means 'letting go' in French and laissez-faire capitalism occurs when the government lets all of its control over trade and economic concerns go and lets the market take over in all aspects. A crucial theory behind laissez-faire capitalism is that unemployment is voluntary because of the individual choice to pursue economic gain.
The Great Depression, a period of harsh economic decline in the 1930s, led to high unemployment rates that were not at all voluntary and this led to the death of laissez-faire capitalism. Capitalism's rescue is credited to English economist John Maynard Keynes. Keynes said that "The importance of money flows from it being a link between the present and the future." His innovative approach of macroeconomics that analyzes business cycles and labor markets helped prevent further economic depression. Keynesian economic methodology continues to further the growth of capitalism today.