In the broadest sense, capitalism may be defined as the economic system making the widest use of capital in the process of production. In the technical sense, capitalism may be defined as the economic system of production in which capital goods are owned privately by individuals or corporations. The following are the economic bases of capitalism.
(i) Private Property:
The institution of private property lies at the basis of modern economic life. It is the terra ferma of capitalism. In capitalism every person has the right to earn and maintain property. The right to property is considered an inviolable right.
(ii) Large Scale Production:
It is another important feature of capitalism. Capitalism arose asa result of industrial revolution which made large scale production possible. The installation of gigantic plants and division of labour increased production. More production means wider use of capital and led to more profits.
(iii) Profit Institution:
According to Marx, capitalism cannot exist in the absence of institution of profit. The capitalists invest money and out of investments earn profit. Production under capitalism is profit-oriented.
Competition is the inevitable result of a capitalist economy. In capitalism there is extreme competition between capitalists. Demand is artificially increased and supply is decreased. There is cut-throat competition under capitalism.
(v) Price Mechanism:
In capitalism the price of a commodity is determined not by the cost of production but by the law of demand and supply.
(vi) Wage Institution:
In capitalism, the worker is haggled. The objective of the capitalist is to pay as less wages as possible and to take as much work out of him as possible. There is exploitation of labour in capitalism.
(vii) Money and Credit:
In capitalism the institution of credit has become important. The capitalists get money on loan and develop their business. Thus, despite a lack of capital, the capitalist increases his property on the basis of credit.
(viii) Business Organization:
Capitalism is marked by vast business structures. The capital of numerous shareholders is pooled and an industrial house is set up.
(ix) Market Economy:
Under capitalism, there is no governmental control over the forces of production, distribution and exchange. It is controlled by the forces operating in the market. There is no price control or regulated distribution by the government. The economy operates freely under the law of demand and supply. The capitalist economy is a liberalised or market economy.