" Capitalism and free enterprise are often seen as synonymous. In truth, they are closely related yet distinct terms with overlapping features. It is possible to have a capitalist economy without complete free enterprise, and possible to have a free market without capitalism.
Any economy is capitalist as long as the factors of production are controlled by private individuals. A free enterprise system has many more necessary conditions and more meaningful implications about social arrangements and government policy.
Capitalism and Production
Capitalism primarily refers to production and property. Under capitalism, the factors of production and their economic rent belong to private individuals or companies. This is distinct from socialism and communism, where the state controls and deploys the factors of production.
The term "capitalism" became famous after Karl Marx used it to deride the profit-seeking employers in Western Europe. As time passed, the connotation of capitalism changed from meaning exploitative to meaning productive.
However, a capitalist system can still be regulated by government laws and the profits of capitalist endeavors can still be taxed heavily. In this sense, nearly all Americans support capitalism, but not all support a free enterprise system.
Free Enterprise and Wealth Exchange
"Free enterprise" can roughly be translated to mean economic exchanges free of coercive government influence. Although unlikely, it is possible to conceive of a system where voluntary individuals always trade in a way that is not capitalistic.
Private property rights still exist in a free enterprise system, although private property may be voluntarily treated as communal without government mandate. Many Native American tribes existed with elements of these arrangements.
Free enterprise is a theory within political economy. If accumulation, ownership and profiting from capital is the central principle of capitalism, then freedom from state coercion is the central principle of free enterprise. "
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