I've never been fond of using the word "capitalism," but if we'd like to conceptualize the economic current of the most recent centuries, the term might be useful. When Marx coined the term (or at least brought it to its modern usage), he was involved in an attempt to associate western society with the convention he thought to be most essential to it: the private ownership of capital. Private ownership stands in contrast to universal or public ownership of property envisioned in an imagined socialist utopia and to the quasi-private ownership in the regal hands of a king or ruling family.
Of course Marx's style was was not to criticize the ethics of any one institution, but to show in a tentatively deductive fashion its inevitable consequences. He did not echo Proudhon's invective that "property is theft," instead he proposed that unsustainable and disparate capital accumulation was an inevitable result of private property. The modern-day lay-socialist generally disposes of this in favor of a more hands-on assault on private property on moral grounds, without so much as a piecemeal consideration for the practical results of the institution.
This is unfortunate because however unfair it may seem to divvy up natural resources, land, or collectively built capital into the hands of individual people, the allocation method of the private market for property is immensely more effective that public ownership in distributing property where needed and incentivizing investment rather that idle use.
The institution of private
property generally has three ends and purposes: as a premium for
investment, an incentive for maintenance and a market for allocation.
Between these three concepts lies the superiority of private property in
comparison to other regimes or distributionary schemes.
It first provides a premium for investment. Any small bit of machinery that can increase worker productivity over an extended period of time produces a social product superior than the cost of its production. In a private property economy, a person who can produce efficient machinery has good reason to, he as its owner is compensated over the long term with part of the capital's returns relative to the increased production.
On the other hand, if all capital and thus machinery is publicly owned, the social benefit of producing more efficient capital is infinitesimally distributed among all persons; in some way this may seem preferable from a social welfare point of view, but because the returns to creating capital are so small for every individual, none have any reason to save, invest and engage in risk to streamline production or add to the net capital stock. Investment is not endogenous, it must be coerced in a publicly owned society.
As the second point, private property
gives the owner of capital an incentive to maintain its economic
viability and usefulness. When a person's income and well-being is tied
to capital, say a truck or bulldozer or crane, he will make sure that it
won't fall apart, given that that would constitute a significant loss
in income. Capital degradation is common, and most things subject to
private ownership, including land, can decline in value if not
constantly upkept. The capitalist's economic motives is to invest in
capital creation, but also to ensure that it remains economically
productive over time.
Public property economies, on the other hand, are notoriously subject to otherwise avoidable depreciation. The case-and-point illustration of this is the "Tragedy of the Commons" i.e. the tendency of publicly owned areas to be overexploited to the point of no return. When a person uses a publicly or non-owned item, he is entitled to any product he can squeeze out of it while bearing none of the costs. He can take his cattle to graze in the commons and will never have to worry about regrowing the grass, he might never litter in his own backyard, but might be much more willing to in a public park, and if given temporary rights to extract natural resources from public property, whether ore or timber, he has no concern with conserving the land that is not his, only with seizing as much of the resources as possible before other parties inevitably deplete them themselves.
The
last main outcome of private property is not so often spoken about, but
in a way it is quite a great deal more important than the other two in
terms of distribution. Private property provides the owner or property
with a powerful and scaled incentive to see that it is aptly allocated
to the economic purposes that are most productive with all market
variables taken into account. Because the property owner is
profit-motivated, he will generally seek the highest possible returns
for the use of his property, be it capital or land or even his own labor
skills. Meanwhile, in the market for said property, the agent willing
to offset the most consumption, and therefore money to purchase use of
the property is generally he who foresees that his venture will be most
profitable with risk taken into account. These tendencies will generally
link a unit of capital or land with its most efficient method of
utilization.
One potential buyer, who say plans to build a
Cotton Candy Emporium, may project his expected profits into the hundred
of thousands and will be willing to buy a parcel of land for an amount
of money that is a function of those profits. Another entrepreneur who
plans to build an automobile manufactury will be willing to offset far
more money to use that land given that his enterprise will likely be far
more socially productive. Financial institutions that predict higher profits will follow the money. Because of private property, scarce land and capital is
automatically distributed to the more efficient purpose governed only by
the profit-motive by its owner and/or renter.
Put another way, if there were no rents allotted on land or capital, and the persons who managed it on behalf of the public had no profit-motive in the matter, it would not matter to them whether their land or capital were used for a highly productive enterprise or a more inefficient one, or perhaps for none at all (although that might actually be easier). In a private property economy, they are led to sell or rent out land to the highest bidder, who foresees greater possible profits than his competitor does, and thus is willing to make the greatest economic sacrifices to the owner to use it.
In this, there is a degree to which property is important as established in its first purpose (i.e. incentive to invest) in which rents on land or capital are a reward to the owner for investing in and creating capital, and also in the second purpose (i.e. maintenance) in which private property is kept up by their owners, but for the market mechanism, the allocative purpose is most important; for this it does not so much matter that an owner is "rewarded" for the ownership of capital, only that the market for his product gives him reason to see it best allocated by a subsidiary agent. All potential uses of his property are cardinally indexed by potential output and simply by choosing the best price for him to sell or rent, he chooses the socially apt one, without the presence of confounding externalities.
A hypothetical society without private property (on a macro-level, no such society exists) would only perform as well as they could imitate the allocation of a private one. A market with a price system thus easily designates the most socially beneficial use of a unit of land or capital (the only issue is finding the best deal) and provides its owner with financial incentives to follow it; collective economies cannot do either, and must rely only on the anecdotes of the social planners.
Of course private property is really just an emergent institution of human cultures that have reach a small level of material well-being. Old socialists criticized it because they failed to see its purpose and its role in the economy as an iterated game. Their oversight can be tallied with the Greco-Roman/early Christian misunderstanding of interest and market price. All and all, it's another reminder to those who hold a system of an institutional analysis that goes "shoot now, try to understand later."