WHAT IS CAPITALISM?

  
The capitalist class process is the social relationship founded upon voluntary wage labor. It is one of many different ways surplus labor is appropriated and distributed.  Capitalism is a type of society where the capitalist class process is the predominant class process. This type of capitalist society is distinguished by the unique wage-labor relationship by which surplus labor is brought into existence and appropriated by a non-laborer (or collective of non-laborers, as in the typical contemporary case of capitalist appropriation by a legally empowered board of directors) without direct coercion.  Human beings sell their potential to do labor (their labor-power) in a "market" where the number of possible buyers is large enough so as to allow some modicum of choice of employer.  In other words, every worker is free to choose his or her employer.  This is in contrast to feudalism where the serf has no choice of employer, slavery where the choice is made by the slave owner, and self-employment where the worker does not sell her laboring potential on a market, nor does anyone else sell her laboring potential.  Any web search of the word capitalism will find a large number of newer, alternative definitions of capitalism. However, most of these alternatives do not distinquish capitalism from slavery or self-employment or any number of other class processes where markets, profit orientation, and private property were typical characteristics. Instead, these overly generalized (if not idealized and utopian) definitions seem to have been invented purely to obfuscate the underlying wage labor relationship that makes capitalism a unique class system (displacing any attempt to conduct scientific analysis of the unique dynamic of capitalism vis-a-vis slavery, feudalism, or self-employment). Just as importantly, many of these newer definitions of capitalism produce false impressions of actual capitalist societies. For example Microsoft's Encarta claims that capitalism is "characterized by a free competitive market." While it is unclear what is meant by "free competitive market," if it is assumed that this means something akin to the neoclassical definition of perfect competition, then it becomes possible to test whether or not a nation is capitalist by the presence or absence of that strict condition for market exchange. In neoclassical economic theory perfect competition exists if and only if all market players are equally powerless and have no influence over the prices of the products they buy and sell. The market power exerted by Microsoft itself serves as sufficient to refute this condition. Thus, according to the strict interpretation of Microsoft's Encarta definition, the United States is not a capitalist nation (since it can be easily demonstrated that not only does Microsoft have market power, but a number of other prominent firms also have the ability to influence pricing (of both what they sell and buy), e.g. WalMart, Exxon-Mobil, Archer Daniels Midland, etc.).
The term "capitalism" is contested.  While Marx used the term capitalist mode of production (capitalism) to distinguish a new type of social relationship within which labor power was commodified (wage laborers sell their labor time in a labor market), Werner Sombart (Modern Capitalism, 1902) initiated an alternative tradition that conflated the concept of capitalism with market society. Many of those who supported the growth and expansion of capitalist relationships adopted the same approach as Sombart, obfuscating the more narrow definition of Marx (a definition that is critical to understanding his particular critique of capitalist society, including all those characteristics which were seen as historically congruent with the rise of capitalism qua the wage labor based social system). In the Sombartian tradition, capitalism has been equated with free markets, competitive markets, and a wide range of other social institutions and processes that may have little to do with the more narrowly defined capitalist class process at the core of Marx's critique.  It is the capitalist class process, however, that allows for a unique definition of capitalism and one more consistent with the use of the term historically, especially by Marx.  Marx spent most of his intellectual life producing a theory of capitalism.  His theory of the capitalist class process, captured within the pages of Capital, volumes I, II, and III, continues to be influential in social science and politics. 
. . . this relation demands
that the owner of the labour-power
should sell it only for a definite period,
for if he were to sell it rump and stump,
once for all,
he would be selling himself,
converting himself
from a free man into a slave,
from an owner of a commodity
into a commodity.
He must constantly look
upon his labour-power
as his own property,
his own commodity,
and this he can only do by placing
it at the disposal of the buyer
temporarily,
for a definite period of time.

For the conversion of his money
into capital,
therefore,
the owner of money
must meet in the market
with the free labourer,
free in the double sense,
that as a free man
he can dispose of his labour-power
as his own commodity,
and that on the other hand
he has no other commodity for sale,
is short of everything
necessary for the realisation
of his labour-power.

---Marx