"Etymologically, 'capitalism' implies no more than a system that stresses the accumulation and use of capital—and all forms of economic organization do that. Some free-enterprisers even shun the word because it was popularized by Karl Marx and other socialist thinkers as a name for a system that they were attacking, and it retains a pejorative flavor. Adam Smith never mentioned capitalism in any of his works; he preferred the term natural order.
Still, the essentials of capitalism are clear. The touchstone is private ownership of most industry. A necessary corollary is that most production and services are motivated by the drive for profit. That in turn implies a relatively free market—one in which entrepreneurs can enter any kind of business they wish, and private businessmen make most of their own decisions.
Capitalism is associated with a high degree of political and social freedom, but that is not a requisite; some economists argue that Nazi Germany was capitalist because most of its industry was privately owned. Yugoslavia, on the other hand, is still outside the capitalist camp because most of its industries are state-owned, even though they compete in a market economy.
Other countries vary widely, from relatively straightforward capitalism, as in Singapore, Canada and Argentina, through mixed economies where the government owns only key industries (oil in Indonesia), to nearly total government control of business, as in Cuba, Algeria and Hungary.
Read more about the different shades of capitalism...