Capitalism is an
economic system based on the
private ownership of the
means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
and their operation for
profit. Central characteristics of capitalism include
capital accumulation,
competitive market
In economics, competition is a scenario where different economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the same (legal) firm ...
s,
price system
In economics, a price system is a system through which the valuations of any forms of property (tangible or intangible) are determined. All societies use price systems in the allocation and exchange of resources as a consequence of scarcity. Even ...
,
private property,
property rights
The right to property, or the right to own property (cf. ownership) is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typically h ...
recognition,
voluntary exchange Voluntary exchange is the act of buyers and sellers freely and willingly engaging in market transactions.
Voluntary exchange is a fundamental assumption in classical economics and neoclassical economics which forms the basis of contemporary main ...
, and
wage labor
Wage labour (also wage labor in American English), usually referred to as paid work, paid employment, or paid labour, refers to the socioeconomic relationship between a worker and an employer in which the worker sells their labour power under ...
. In a
market economy, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in
capital and
financial market
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial market ...
s—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
Economist
An economist is a professional and practitioner in the social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
s,
historian
A historian is a person who studies and writes about the past and is regarded as an authority on it. Historians are concerned with the continuous, methodical narrative and research of past events as relating to the human race; as well as the st ...
s,
political economist
Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour m ...
s and
sociologists have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include ''
laissez-faire
''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups ...
'' or
free-market capitalism
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or an ...
,
anarcho-capitalism,
state capitalism
State capitalism is an economic system in which the state undertakes business and commercial (i.e. for-profit) economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital ...
and
welfare capitalism
Welfare capitalism is capitalism that includes social welfare policies and/or the practice of businesses providing welfare services to their employees. Welfare capitalism in this second sense, or industrial paternalism, was centered on industrie ...
. Different
forms of capitalism feature varying degrees of
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
s,
public ownership
State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community, as opposed to an individual or private party. Public ownershi ...
,
obstacles to free competition and state-sanctioned
social policies
Social policy is a plan or action of government or institutional agencies which aim to improve or reform society.
Some professionals and universities consider social policy a subset of public policy, while other practitioners characterize soci ...
. The degree of
competition
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indiv ...
in
markets and the role of
intervention and
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...
as well as the scope of state ownership vary across different models of capitalism.
The extent to which different markets are free and the rules defining private property are matters of politics and policy. Most of the existing capitalist economies are
mixed economies
A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
that combine elements of free markets with state intervention and in some cases
economic planning.
[Stilwell, Frank. "Political Economy: the Contest of Economic Ideas". First Edition. Oxford University Press. Melbourne, Australia. 2002.]
Market economies
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...
have existed under many
forms of government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
and in many different times, places and cultures. Modern capitalist societies developed in Western Europe in a process that led to the
Industrial Revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
. Capitalist systems with varying degrees of direct government intervention have since become dominant in the
Western world
The Western world, also known as the West, primarily refers to the various nations and states in the regions of Europe, North America, and Oceania. and continue to spread.
Economic growth is a characteristic tendency of capitalist economies.
Etymology
The term "capitalist", meaning an owner of
capital, appears earlier than the term "capitalism" and dates to the mid-17th century. "Capitalism" is derived from ''capital'', which evolved from , a late
Latin
Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power of the ...
word based on , meaning "head"—which is also the origin of "
chattel" and "
cattle
Cattle (''Bos taurus'') are large, domesticated, cloven-hooved, herbivores. They are a prominent modern member of the subfamily Bovinae and the most widespread species of the genus ''Bos''. Adult females are referred to as cows and adult ma ...
" in the sense of movable property (only much later to refer only to livestock). emerged in the 12th to 13th centuries to refer to funds, stock of merchandise, sum of money or money carrying interest.
[James Augustus Henry Murray. "Capital"]
A New English Dictionary on Historical Principles
''Oxford English Press''. 2. p. 93. By 1283, it was used in the sense of the capital assets of a trading firm and was often interchanged with other words—wealth, money, funds, goods, assets, property and so on.
The ''Hollantse (german: holländische) Mercurius'' uses "capitalists" in 1633 and 1654 to refer to owners of capital.
In French,
Étienne Clavier referred to ''capitalistes'' in 1788, four years before its first recorded English usage by
Arthur Young in his work ''Travels in France'' (1792).
In his ''
Principles of Political Economy and Taxation
'' the Principles of Political Economy and Taxation'' (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory that ...
'' (1817),
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
referred to "the capitalist" many times. English poet
Samuel Taylor Coleridge
Samuel Taylor Coleridge (; 21 October 177225 July 1834) was an English poet, literary critic, philosopher, and theologian who, with his friend William Wordsworth, was a founder of the Romantic Movement in England and a member of the Lake ...
used "capitalist" in his work ''Table Talk'' (1823).
Pierre-Joseph Proudhon
Pierre-Joseph Proudhon (, , ; 15 January 1809, Besançon – 19 January 1865, Paris) was a French socialist,Landauer, Carl; Landauer, Hilde Stein; Valkenier, Elizabeth Kridl (1979) 959 "The Three Anticapitalistic Movements". ''European Socia ...
used the term in his first work, ''
What is Property?
"Property is theft!" (french: La propriété, c'est le vol!) is a slogan coined by French anarchist Pierre-Joseph Proudhon in his 1840 book ''What Is Property? or, An Inquiry into the Principle of Right and of Government''.
Overview
By "pro ...
'' (1840), to refer to the owners of capital.
Benjamin Disraeli used the term in his 1845 work ''
Sybil''.
The initial use of the term "capitalism" in its modern sense is attributed to
Louis Blanc
Louis Jean Joseph Charles Blanc (; ; 29 October 1811 – 6 December 1882) was a French politician and historian. A socialist who favored reforms, he called for the creation of cooperatives in order to guarantee employment for the urban poor. Alt ...
in 1850 ("What I call 'capitalism' that is to say the appropriation of capital by some to the exclusion of others") and Pierre-Joseph Proudhon in 1861 ("Economic and social regime in which capital, the source of income, does not generally belong to those who make it work through their labor").
Karl Marx
Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
frequently referred to the "
capital" and to the "capitalist mode of production" in ''
Das Kapital
''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, link=no, ; 1867–1883), is a foundational theoretical text in materialist phi ...
'' (1867).
[MEW, 23, & Das Kapital. Kritik der politischen Oekonomie. Erster Band-Verlag von Otto Meissner (1867)] Marx did however not use the form ''capitalism'', but instead used
capital, ''capitalist'' and ''capitalist mode of production'', which appear frequently.
Due to the word being coined by socialist critics of capitalism, economist and historian
Robert Hessen
Robert Hessen (born 1936) is an American economic and business historian. He is a professor at the Graduate School of Business at Stanford University and a senior research fellow at Stanford's Hoover Institution. He is an Objectivist and has ...
stated that the term "capitalism" itself is a term of disparagement and a misnomer for
economic individualism.
Bernard Harcourt
Bernard E. Harcourt (born 1963) is an American critical theorist with a specialization in the area of punishment, surveillance, legal and political theory, and political economy. He also does pro-bono legal work on human rights issues.
He is a pr ...
agrees with the statement that the term is a misnomer, adding that it misleadingly suggests that there is such as a thing as "
capital" that inherently functions in certain ways and is governed by stable economic laws of its own.
In the
English language
English is a West Germanic language of the Indo-European language family, with its earliest forms spoken by the inhabitants of early medieval England. It is named after the Angles, one of the ancient Germanic peoples that migrated to the ...
, the term "capitalism" first appears, according to the ''
Oxford English Dictionary
The ''Oxford English Dictionary'' (''OED'') is the first and foundational historical dictionary of the English language, published by Oxford University Press (OUP). It traces the historical development of the English language, providing a co ...
'' (OED), in 1854, in the novel ''
The Newcomes'' by novelist
William Makepeace Thackeray
William Makepeace Thackeray (; 18 July 1811 – 24 December 1863) was a British novelist, author and illustrator. He is known for his satirical works, particularly his 1848 novel ''Vanity Fair'', a panoramic portrait of British society, and t ...
, where the word meant "having ownership of capital".
[James Augustus Henry Murray. "Capitalism" p. 94.] Also according to the OED,
Carl Adolph Douai
Karl Daniel Adolf Douai (1819 – 1888), known to his peers as "Adolf", was a German Texan teacher as well as a socialist and Abolitionism in the United States, abolitionist newspaper editor. Douai was driven from Texas in 1856 due to his published ...
, a
German American socialist
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the ...
and
abolitionist
Abolitionism, or the abolitionist movement, is the movement to end slavery. In Western Europe and the Americas, abolitionism was a historic movement that sought to end the Atlantic slave trade and liberate the enslaved people.
The British ...
, used the term "private capitalism" in 1863.
History
![Jacopo Pontormo 055](https://upload.wikimedia.org/wikipedia/commons/b/bf/Jacopo_Pontormo_055.jpg)
Capitalism in its modern form can be traced to the emergence of agrarian capitalism and mercantilism in the early
Renaissance
The Renaissance ( , ) , from , with the same meanings. is a period in European history
The history of Europe is traditionally divided into four time periods: prehistoric Europe (prior to about 800 BC), classical antiquity (800 BC to AD ...
, in city-states like
Florence
Florence ( ; it, Firenze ) is a city in Central Italy and the capital city of the Tuscany Regions of Italy, region. It is the most populated city in Tuscany, with 383,083 inhabitants in 2016, and over 1,520,000 in its metropolitan area.Bilan ...
.
Capital has existed incipiently on a small scale for centuries
in the form of merchant, renting and lending activities and occasionally as small-scale industry with some wage labor. Simple
commodity exchange and consequently simple commodity production, which is the initial basis for the growth of capital from trade, have a very long history. During the
Islamic Golden Age
The Islamic Golden Age was a period of cultural, economic, and scientific flourishing in the history of Islam, traditionally dated from the 8th century to the 14th century. This period is traditionally understood to have begun during the reign ...
,
Arabs
The Arabs (singular: Arab; singular ar, عَرَبِيٌّ, DIN 31635: , , plural ar, عَرَب, DIN 31635: , Arabic pronunciation: ), also known as the Arab people, are an ethnic group mainly inhabiting the Arab world in Western Asia, ...
promulgated capitalist economic policies such as free trade and banking. Their use of
Indo-Arabic numerals facilitated
bookkeeping. These innovations migrated to Europe through trade partners in cities such as Venice and Pisa. The Italian
mathematician
A mathematician is someone who uses an extensive knowledge of mathematics in their work, typically to solve mathematical problems.
Mathematicians are concerned with numbers, data, quantity, structure, space, models, and change.
History
On ...
Fibonacci
Fibonacci (; also , ; – ), also known as Leonardo Bonacci, Leonardo of Pisa, or Leonardo Bigollo Pisano ('Leonardo the Traveller from Pisa'), was an Italian mathematician from the Republic of Pisa, considered to be "the most talented Wester ...
traveled the Mediterranean talking to Arab traders and returned to popularize the use of Indo-Arabic numerals in Europe.
Agrarianism
The economic foundations of the feudal agricultural system began to shift substantially in 16th-century England as the
manorial system
Manorialism, also known as the manor system or manorial system, was the method of land ownership (or "tenure") in parts of Europe, notably France and later England, during the Middle Ages. Its defining features included a large, sometimes forti ...
had broken down and land began to become concentrated in the hands of fewer landlords with increasingly large estates. Instead of a
serf-based system of labor, workers were increasingly employed as part of a broader and expanding money-based economy. The system put pressure on both landlords and tenants to increase the productivity of agriculture to make profit; the weakened coercive power of the
aristocracy to extract peasant
surpluses encouraged them to try better methods, and the tenants also had incentive to improve their methods in order to flourish in a competitive
labor market. Terms of rent for land were becoming subject to economic market forces rather than to the previous stagnant system of custom and feudal obligation.
Mercantilism
![Lorrain](https://upload.wikimedia.org/wikipedia/commons/2/29/Lorrain.seaport.jpg)
The economic doctrine prevailing from the 16th to the 18th centuries is commonly called
mercantilism.
This period, the
Age of Discovery
The Age of Discovery (or the Age of Exploration), also known as the early modern period, was a period largely overlapping with the Age of Sail, approximately from the 15th century to the 17th century in European history, during which seafarin ...
, was associated with the geographic exploration of foreign lands by merchant traders, especially from England and the
Low Countries
The term Low Countries, also known as the Low Lands ( nl, de Lage Landen, french: les Pays-Bas, lb, déi Niddereg Lännereien) and historically called the Netherlands ( nl, de Nederlanden), Flanders, or Belgica, is a coastal lowland region in N ...
. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist methods.
Most scholars consider the era of merchant capitalism and mercantilism as the origin of modern capitalism,
[Burnham (2003)][''Encyclopædia Britannica'' (2006)] although
Karl Polanyi
Karl Paul Polanyi (; hu, Polányi Károly ; 25 October 1886 – 23 April 1964),''Encyclopædia Britannica'' (Chicago: Encyclopædia Britannica Inc. 2003) vol 9. p. 554 was an Austro-Hungarian economic anthropologist and politician, best known ...
argued that the hallmark of capitalism is the establishment of generalized markets for what he called the "fictitious commodities", i.e. land, labor and money. Accordingly, he argued that "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date".
![Clive](https://upload.wikimedia.org/wikipedia/commons/4/4f/Clive.jpg)
England began a large-scale and integrative approach to mercantilism during the
Elizabethan Era
The Elizabethan era is the epoch in the Tudor period of the history of England during the reign of Queen Elizabeth I (1558–1603). Historians often depict it as the golden age in English history. The symbol of Britannia (a female personific ...
(1558–1603). A systematic and coherent explanation of balance of trade was made public through
Thomas Mun
Sir Thomas Mun (17 June 157121 July 1641) was an English writer on economics and is often referred to as the last of the early mercantilists. Most notably, he is known for serving as the director of the East India Company. Due to his strong b ...
's argument ''England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure.'' It was written in the 1620s and published in 1664.
European
merchants, backed by state controls, subsidies and
monopolies
A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
, made most of their profits by buying and selling goods. In the words of
Francis Bacon
Francis Bacon, 1st Viscount St Alban (; 22 January 1561 – 9 April 1626), also known as Lord Verulam, was an English philosopher and statesman who served as Attorney General and Lord Chancellor of England. Bacon led the advancement of both ...
, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices...".
After the period of the
proto-industrialization
Proto-industrialization is the regional development, alongside commercial agriculture, of rural handicraft production for external markets.
The term was introduced in the early 1970s by economic historians who argued that such developments in pa ...
, the
British East India Company
The East India Company (EIC) was an English, and later British, joint-stock company founded in 1600 and dissolved in 1874. It was formed to trade in the Indian Ocean region, initially with the East Indies (the Indian subcontinent and South ...
and the
Dutch East India Company
The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock ...
, after massive contributions from the
Mughal Bengal
The Bengal Subah ( bn, সুবাহ বাংলা; fa, ), also referred to as Mughal Bengal ( bn, মোগল বাংলা), was the largest subdivision of the Mughal Empire (and later an independent state under the Nawabs of Beng ...
,
Om Prakash
Om Prakash (born Om Prakash Chibber 19 December 1919 – 21 February 1998) was an Indian film actor. He was born in Jammu as Om Prakash Chibber and went on to become a well-known character actor of Bollywood. His most well-known movies are Na ...
,
Empire, Mughal
, ''History of World Trade Since 1450'', edited by John J. McCusker, vol. 1, Macmillan Reference USA, 2006, pp. 237–240, ''World History in Context''. Retrieved 3 August 2017 inaugurated an expansive era of commerce and trade.
These companies were characterized by their
colonial
Colonial or The Colonial may refer to:
* Colonial, of, relating to, or characteristic of a colony or colony (biology)
Architecture
* American colonial architecture
* French Colonial
* Spanish Colonial architecture
Automobiles
* Colonial (1920 au ...
and
expansionary powers given to them by nation-states.
During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a
return on investment
Return on investment (ROI) or return on costs (ROC) is a ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably ...
.
Industrial Revolution
![Maquina vapor Watt ETSIIM](https://upload.wikimedia.org/wikipedia/commons/9/9e/Maquina_vapor_Watt_ETSIIM.jpg)
In the mid-18th century a group of economic theorists, led by
David Hume
David Hume (; born David Home; 7 May 1711 NS (26 April 1711 OS) – 25 August 1776) Cranston, Maurice, and Thomas Edmund Jessop. 2020 999br>David Hume" ''Encyclopædia Britannica''. Retrieved 18 May 2020. was a Scottish Enlightenment phil ...
(1711–1776) and
Adam Smith (1723–1790), challenged fundamental mercantilist doctrines—such as the belief that the world's wealth remained constant and that a state could only increase its wealth at the expense of another state.
During the
Industrial Revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
,
industrialists
A business magnate, also known as a tycoon, is a person who has achieved immense wealth through the ownership of multiple lines of enterprise. The term characteristically refers to a powerful entrepreneur or investor who controls, through perso ...
replaced merchants as a dominant factor in the capitalist system and effected the decline of the traditional handicraft skills of
artisan
An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functional or strictly decorative, for example furniture, decorative art ...
s, guilds and
journeymen
A journeyman, journeywoman, or journeyperson is a worker, skilled in a given building trade or craft, who has successfully completed an official apprenticeship qualification. Journeymen are considered competent and authorized to work in that fie ...
. Also during this period, the surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture. Industrial capitalism marked the development of the
factory system
The factory system is a method of manufacturing using machinery and division of labor. Because of the high capital cost of machinery and factory buildings, factories are typically privately owned by wealthy individuals or corporations who emplo ...
of manufacturing, characterized by a complex
division of labor between and within work process and the routine of work tasks; and eventually established the domination of the
capitalist mode of production.
Industrial Britain eventually abandoned the
protectionist
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
policy formerly prescribed by mercantilism. In the 19th century,
Richard Cobden
Richard Cobden (3 June 1804 – 2 April 1865) was an English Radical and Liberal politician, manufacturer, and a campaigner for free trade and peace. He was associated with the Anti-Corn Law League and the Cobden–Chevalier Treaty.
As a you ...
(1804–1865) and
John Bright
John Bright (16 November 1811 – 27 March 1889) was a British Radical and Liberal statesman, one of the greatest orators of his generation and a promoter of free trade policies.
A Quaker, Bright is most famous for battling the Corn La ...
(1811–1889), who based their beliefs on the
Manchester School, initiated a movement to lower
tariffs
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and po ...
.
In the 1840s Britain adopted a less protectionist policy, with the 1846 repeal of the
Corn Laws
The Corn Laws were tariffs and other trade restrictions on imported food and corn enforced in the United Kingdom between 1815 and 1846. The word ''corn'' in British English denotes all cereal grains, including wheat, oats and barley. They wer ...
and the 1849 repeal of the
Navigation Acts
The Navigation Acts, or more broadly the Acts of Trade and Navigation, were a long series of English laws that developed, promoted, and regulated English ships, shipping, trade, and commerce between other countries and with its own colonies. The ...
. Britain reduced tariffs and
quotas
Quota may refer to:
Economics
* Import quota, a trade restriction on the quantity of goods imported into a country
* Market Sharing Quota, an economic system used in Canadian agriculture
* Milk quota, a quota on milk production in Europe
* Indi ...
, in line with David Ricardo's advocacy of
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
.
Modernity
![McKinley Prosperity](https://upload.wikimedia.org/wikipedia/commons/0/0a/McKinley_Prosperity.jpg)
Broader processes of
globalization
Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...
carried capitalism across the world. By the beginning of the nineteenth century, a series of loosely connected market systems had come together as a relatively integrated global system, in turn intensifying processes of economic and other globalization.
Late in the 20th century, capitalism overcame a challenge by
centrally-planned economies and is now the encompassing system worldwide,
with the
mixed economy
A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
as its dominant form in the industrialized Western world.
Industrialization allowed cheap production of household items using
economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
, while rapid
population growth created sustained demand for commodities. The
imperialism of the 18th-century decisively shaped globalization in this period.
After the
First
First or 1st is the ordinal form of the number one (#1).
First or 1st may also refer to:
*World record, specifically the first instance of a particular achievement
Arts and media Music
* 1$T, American rapper, singer-songwriter, DJ, and rec ...
and
Second Opium Wars (1839–1860) and the completion of the British conquest of India, vast populations of Asia became ready consumers of European exports. Also in this period, Europeans colonized areas of sub-Saharan Africa and the Pacific islands. The conquest of new parts of the globe, notably sub-Saharan Africa, by Europeans yielded valuable natural resources such as
rubber
Rubber, also called India rubber, latex, Amazonian rubber, ''caucho'', or ''caoutchouc'', as initially produced, consists of polymers of the organic compound isoprene, with minor impurities of other organic compounds. Thailand, Malaysia, an ...
,
diamonds
Diamond is a solid form of the element carbon with its atoms arranged in a crystal structure called diamond cubic. Another solid form of carbon known as graphite is the chemically stable form of carbon at room temperature and pressure, bu ...
and
coal
Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen.
Coal is formed when ...
and helped fuel trade and investment between the European imperial powers, their colonies and the United States:
The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914.
In this period, the global financial system was mainly tied to the
gold standard
A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the l ...
. The United Kingdom first formally adopted this standard in 1821. Soon to follow were
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
in 1853,
Newfoundland in 1865, the United States and Germany (''
de jure
In law and government, ''de jure'' ( ; , "by law") describes practices that are legally recognized, regardless of whether the practice exists in reality. In contrast, ("in fact") describes situations that exist in reality, even if not legally ...
'') in 1873. New technologies, such as the
telegraph
Telegraphy is the long-distance transmission of messages where the sender uses symbolic codes, known to the recipient, rather than a physical exchange of an object bearing the message. Thus flag semaphore is a method of telegraphy, whereas p ...
, the
transatlantic cable, the
radiotelephone, the
steamship and
railway
Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in tracks. In contrast to road transport, where the vehicles run on a pre ...
s allowed goods and information to move around the world to an unprecedented degree.
![NY stock exchange traders floor LC-U9-10548-6](https://upload.wikimedia.org/wikipedia/commons/e/ea/NY_stock_exchange_traders_floor_LC-U9-10548-6.jpg)
In the period following the global depression of the 1930s, governments played an increasingly prominent role in the capitalistic system throughout much of the world.
Contemporary capitalist societies developed in the West from 1950 to the present and this type of system continues to expand throughout different regions of the world—relevant examples started in the
United States after the 1950s,
France after the 1960s,
Spain after the 1970s,
Poland after 2015, and others. At this stage capitalist markets are considered developed and are characterized by developed private and public markets for equity and debt, a high
standard of living (as characterized by the
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
and the
IMF), large institutional investors and a well-funded
banking system
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Becaus ...
. A significant
managerial class has emerged and decides on a significant proportion of investments and other decisions. A different future than that envisioned by Marx has started to emerge—explored and described by
Anthony Crosland
Charles Anthony Raven Crosland (29 August 191819 February 1977) was a British Labour Party politician and author. A social democrat on the right wing of the Labour Party, he was a prominent socialist intellectual. His influential book '' The ...
in the United Kingdom in his 1956 book ''
The Future of Socialism
''The Future of Socialism'' is a 1956 book by Anthony Crosland. It was one of the most influential books in post-war British Labour Party thinking. It was the seminal work of the 'revisionist' school of Labour politics.
The book defined Labour's ...
'' and by
John Kenneth Galbraith
John Kenneth Galbraith (October 15, 1908 – April 29, 2006), also known as Ken Galbraith, was a Canadian-American economist, diplomat, public official, and intellectual. His books on economic topics were bestsellers from the 1950s through t ...
in North America in his 1958 book ''
The Affluent Society
''The Affluent Society'' is a 1958 (4th edition revised 1984) book by Harvard economist John Kenneth Galbraith. The book sought to clearly outline the manner in which the post–World War II United States was becoming wealthy in the private sec ...
'', 90 years after Marx's research on the state of capitalism in 1867.
The
postwar boom ended in the late 1960s and early 1970s and the economic situation grew worse with the rise of
stagflation
In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actio ...
.
Monetarism
Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on nation ...
, a modification of
Keynesianism
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...
that is more compatible with ''laissez-faire'' analyses, gained increasing prominence in the capitalist world, especially under the years in office of
Ronald Reagan in the United States (1981–1989) and of
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher (; 13 October 19258 April 2013) was Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party from 1975 to 1990. She was the first female British prime ...
in the United Kingdom (1979–1990). Public and political interest began shifting away from the so-called
collectivist concerns of Keynes's managed capitalism to a focus on individual
choice
A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a give ...
, called "remarketized capitalism".
The end of the
Cold War and the
dissolution of the Soviet Union allowed for capitalism to become a truly global system in a way not seen since before
World War I
World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
. The development of the
neoliberal global economy would have been impossible without the fall of
communism
Communism (from Latin la, communis, lit=common, universal, label=none) is a far-left sociopolitical, philosophical, and economic ideology and current within the socialist movement whose goal is the establishment of a communist society, a ...
.
Harvard Kennedy School economist Dani Rodrik distinguishes between three historical variants of capitalism:
* Capitalism 1.0 during the 19th century entailed largely unregulated markets with a minimal role for the state (aside from national defense, and protecting property rights)
* Capitalism 2.0 during the post-World War II years entailed Keynesianism, a substantial role for the state in regulating markets, and strong welfare states
* Capitalism 2.1 entailed a combination of unregulated markets, globalization, and various national obligations by states
Relationship to democracy
![20041120-1 bushchinamtg-1-515h](https://upload.wikimedia.org/wikipedia/commons/f/fd/20041120-1_bushchinamtg-1-515h.jpg)
The relationship between
democracy
Democracy (From grc, δημοκρατία, dēmokratía, ''dēmos'' 'people' and ''kratos'' 'rule') is a form of government in which people, the people have the authority to deliberate and decide legislation ("direct democracy"), or to choo ...
and capitalism is a contentious area in theory and in popular political movements. The extension of adult-male
suffrage in 19th-century Britain occurred along with the development of industrial capitalism and
representative democracy
Representative democracy, also known as indirect democracy, is a type of democracy where elected people represent a group of people, in contrast to direct democracy. Nearly all modern Western-style democracies function as some type of represe ...
became widespread at the same time as capitalism, leading capitalists to posit a causal or mutual relationship between them. However, according to some authors in the 20th-century, capitalism also accompanied a variety of political formations quite distinct from liberal democracies, including
fascist regimes,
absolute monarchies
Absolute monarchy (or Absolutism as a doctrine) is a form of monarchy in which the monarch rules in their own right or power. In an absolute monarchy, the king or queen is by no means limited and has absolute power, though a limited constitut ...
and
single-party states.
Democratic peace theory
The democratic peace theory posits that democracies are hesitant to engage in armed conflict with other identified democracies. Among proponents of the democratic peace theory, several factors are held as motivating peace between democratic s ...
asserts that democracies seldom fight other democracies, but critics of that theory suggest that this may be because of political similarity or stability rather than because they are "democratic" or "capitalist". Moderate critics argue that though economic growth under capitalism has led to democracy in the past, it may not do so in the future as
authoritarian régimes have been able to manage economic growth using some of capitalism's competitive principles without making concessions to greater
political freedom.
Political scientists
Torben Iversen and
David Soskice
David William Soskice, FBA (born 6 July 1942) is a British political economist and academic. He is currently the LSE School Professor of Political Science and Economics at the London School of Economics.
Early life and education
Soskice was bor ...
see democracy and capitalism as mutually supportive.
Robert Dahl
Robert Alan Dahl (; December 17, 1915 – February 5, 2014) was an American political theorist and Sterling Professor of Political Science at Yale University.
He established the pluralist theory of democracy—in which political outcomes are ...
argued in ''On Democracy'' that capitalism was beneficial for democracy because economic growth and a large middle class were good for democracy.
He also argued that a market economy provided a substitute for government control of the economy, which reduces the risks of tyranny and authoritarianism.
In his book ''
The Road to Serfdom
''The Road to Serfdom'' ( German: ''Der Weg zur Knechtschaft'') is a book written between 1940 and 1943 by Austrian-British economist and philosopher Friedrich Hayek. Since its publication in 1944, ''The Road to Serfdom'' has been popular among ...
'' (1944),
Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
(1899–1992) asserted that the free-market understanding of
economic freedom
Economic freedom, or economic liberty, is the ability of people of a society to take economic actions. This is a term used in economic and policy debates as well as in the philosophy of economics. One approach to economic freedom comes from the l ...
as present in capitalism is a requisite of
political freedom. He argued that the market mechanism is the only way of deciding what to produce and how to distribute the items without using coercion.
Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
and
Ronald Reagan also promoted this view. Friedman claimed that centralized economic operations are always accompanied by
political repression. In his view, transactions in a market economy are voluntary and that the wide diversity that voluntary activity permits is a fundamental threat to repressive
political leader
A politician is a person active in party politics, or a person holding or seeking an elected office in government. Politicians propose, support, reject and create laws that govern the land and by an extension of its people. Broadly speaking, a ...
s and greatly diminishes their power to coerce. Some of Friedman's views were shared by
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
, who believed that capitalism was vital for freedom to survive and thrive.
Freedom House, an American
think-tank
A think tank, or policy institute, is a research institute that performs research and advocacy concerning topics such as social policy, political strategy, economics, military, technology, and culture. Most think tanks are non-governmental ...
that conducts international research on, and advocates for, democracy, political freedom and
human rights
Human rights are moral principles or normsJames Nickel, with assistance from Thomas Pogge, M.B.E. Smith, and Leif Wenar, 13 December 2013, Stanford Encyclopedia of PhilosophyHuman Rights Retrieved 14 August 2014 for certain standards of hu ...
, has argued that "there is a high and statistically significant correlation between the level of political freedom
as measured by Freedom House and economic freedom
as measured by the Wall Street Journal/Heritage Foundation survey".
In ''
Capital in the Twenty-First Century
''Capital in the Twenty-First Century'' (french: Le Capital au XXIe siècle) is a book written by French economist Thomas Piketty. It focuses on wealth and income inequality in Europe and the United States since the 18th century. It was initially ...
'' (2013),
Thomas Piketty
Thomas Piketty (; born 7 May 1971) is a French economist who is Professor of Economics at the School for Advanced Studies in the Social Sciences, Associate Chair at the Paris School of Economics and Centennial Professor of Economics in the I ...
of the
Paris School of Economics
The Paris School of Economics (PSE; French: ''École d'économie de Paris'') is a French research institute in the field of economics. It offers MPhil, MSc, and PhD level programmes in various fields of theoretical and applied economics, i ...
asserted that inequality is the inevitable consequence of economic growth in a capitalist economy and the resulting Wealth concentration, concentration of wealth can destabilize democratic societies and undermine the ideals of social justice upon which they are built.
States with capitalistic economic systems have thrived under political regimes deemed to be authoritarian or oppressive. Singapore has a successful open market economy as a result of its competitive, business-friendly climate and robust rule of law. Nonetheless, it often comes under fire for its style of government which, though democratic and consistently one of the least corrupt, operates largely under a one-party rule. Furthermore, it does not vigorously defend freedom of expression as evidenced by its government-regulated press, and its penchant for upholding laws protecting ethnic and religious harmony, judicial dignity and personal reputation. The private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception, despite having an authoritarian government. Augusto Pinochet's Military dictatorship of Chile (1973–1990), rule in Chile led to economic growth and high levels of inequality by using authoritarian means to create a safe environment for investment and capitalism. Similarly, Suharto's authoritarian reign and Indonesian mass killings of 1965–66, extirpation of the Communist Party of Indonesia allowed for the expansion of capitalism in Indonesia.
The term "capitalism" in its modern sense is often attributed to
Karl Marx
Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
.
In his ''Das Kapital'', Marx analyzed the "
capitalist mode of production" using a method of understanding today known as Marxism. However, Marx himself rarely used the term "capitalism" while it was used twice in the more political interpretations of his work, primarily authored by his collaborator Friedrich Engels. In the 20th century, defenders of the capitalist system often replaced the term "capitalism" with phrases such as free enterprise and private enterprise and replaced "capitalist" with Rentier capitalism, rentier and investor in reaction to the negative connotations associated with capitalism.
Characteristics
In general, capitalism as an economic system and mode of production can be summarized by the following:
* Capital accumulation:
production for profit and accumulation as the implicit purpose of all or most of production, constriction or elimination of production formerly carried out on a common social or private household basis.
* Production (economics), Commodity production: production for exchange on a market; to maximize exchange-value instead of use-value.
* Private ownership of the means of production:
* High levels of wage labour, wage labor.
* The investment of money to make a profit.
* The use of the price mechanism to allocate resources between competing uses.
* Economically efficient use of the factors of production and raw materials due to maximization of value added in the production process.
* Freedom of capitalists to act in their self-interest in managing their business and investments.
Market
In
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
and ''laissez-faire'' forms of capitalism, markets are used most extensively with minimal or no regulation over the pricing mechanism. In mixed economies, which are almost universal today, markets continue to play a dominant role, but they are regulated to some extent by the state in order to correct market failures, promote social welfare, conserve natural resources, fund military, defense and public safety or other rationale. In State capitalism, state capitalist systems, markets are relied upon the least, with the state relying heavily on state-owned enterprises or indirect economic planning to accumulate capital.
Competition arises when more than one producer is trying to sell the same or similar products to the same buyers. Adherents of the capitalist theory believe that competition leads to innovation and more affordable prices. Monopoly, Monopolies or cartels can develop, especially if there is no competition. A monopoly occurs when a firm has exclusivity over a market. Hence, the firm can engage in rent seeking behaviors such as limiting output and raising prices because it has no fear of competition. A cartel is a group of firms that act together in a monopolistic manner to control output and prices.
Governments have implemented legislation for the purpose of preventing the creation of monopolies and cartels. In 1890, the Sherman Antitrust Act of 1890, Sherman Antitrust Act became the first legislation passed by the United States Congress to limit monopolies.
Wage labor
Wage labor, usually referred to as paid work, paid employment, or paid labor, refers to the socioeconomics, socioeconomic relationship between a workforce, worker and an employment, employer in which the worker sells their labor power under a formal or informal employment contract.
[: "All labor contracts were/are designed legally to bind a worker in one way or another to fulfill the labor obligations the worker has undertaken. That is one of the principal purposes of labor contracts."] These transactions usually occur in a labour economics, labor market where wages or salary, salaries are market economy, market-determined.
In exchange for the money paid as wages (usual for short-term work-contracts) or salaries (in permanent employment contracts), the work product generally becomes the work for hire, undifferentiated property of the employer. A wage laborer is a person whose primary means of income is from the selling of their labor in this way.
Profit motive
The profit motive, in the theory of capitalism, is the desire to earn income in the form of profit. Stated differently, the reason for a business's existence is to turn a profit. The profit motive functions according to rational choice theory, or the theory that individuals tend to pursue what is in their own best interests. Accordingly, businesses seek to benefit themselves and/or their shareholders by maximizing profit.
In capitalist theoretics, the profit motive is said to ensure that resources are being allocated efficiently. For instance, Austrian economist Henry Hazlitt explains: "If there is no profit in making an article, it is a sign that the labor and capital devoted to its production are misdirected: the value of the resources that must be used up in making the article is greater than the value of the article itself".
Private property
The relationship between the State (polity), state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. Hernando de Soto (economist), Hernando de Soto is a contemporary Peruvian economist who has argued that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded.
According to de Soto, this is the process by which physical assets are transformed into capital, which in turn may be used in many more ways and much more efficiently in the market economy. A number of Marxian economists have argued that the Enclosure Acts in England and similar legislation elsewhere were an integral part of capitalist primitive accumulation and that specific legal frameworks of private land ownership have been integral to the development of capitalism.
Private property rights are not absolute, as in many countries the state has the power to seize private property, typically for public use, under the powers of eminent domain.
Market competition
In capitalist economics, market competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share and sales volume by varying the elements of the marketing mix: price, product, distribution and promotion. Merriam-Webster defines competition in business as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms". It was described by
Adam Smith in ''The Wealth of Nations'' (1776) and later economists as allocating productive resources to their most highly valued uses and encouraging x-efficiency, efficiency. Smith and other classical economists before Antoine Augustin Cournot, Antoine Augustine Cournot were referring to price and non-price rivalry among producers to sell their goods on best terms by bidding of buyers, not necessarily to a large number of sellers nor to a market in final Economic equilibrium, equilibrium. Competition is widespread throughout the market process. It is a condition where "buyers tend to compete with other buyers, and sellers tend to compete with other sellers".
In offering goods for exchange, buyers competitively bid to purchase specific quantities of specific goods which are available, or might be available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering goods on the market, competing for the attention and exchange resources of buyers. Competition results from scarcity, as it is not possible to satisfy all conceivable human wants, and occurs as people try to meet the criteria being used to determine allocation.
In the works of Adam Smith, the idea of capitalism is made possible through competition which creates growth. Although capitalism has not entered mainstream economics at the time of Smith, it is vital to the construction of his ideal society. One of the foundational blocks of capitalism is competition. Smith believed that a prosperous society is one where "everyone should be free to enter and leave the market and change trades as often as he pleases."
He believed that the freedom to act in one's self-interest is essential for the success of a capitalist society. The fear arises that if all participants focus on their own goals, society's well-being will be water under the bridge. Smith maintains that despite the concerns of intellectuals, "global trends will hardly be altered if they refrain from pursuing their personal ends." He insisted that the actions of a few participants cannot alter the course of society. Instead, Smith maintained that they should focus on personal progress instead and that this will result in overall growth to the whole.
Competition between participants, "who are all endeavoring to justle one another out of employment, obliges every man to endeavor to execute his work" through competition towards growth.
Economic growth
Economic growth is a characteristic tendency of capitalist economies.
As a mode of production
The capitalist mode of production refers to the systems of organising production and distribution within capitalist society, societies. Private money-making in various forms (renting, banking, merchant trade, production for profit and so on) preceded the development of the capitalist mode of production as such. The capitalist mode of production proper based on wage-labor and private ownership of the means of production and on industrial technology began to grow rapidly in Western Europe from the
Industrial Revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
, later extending to most of the world.
The term capitalist mode of production is defined by Private property, private ownership of the
means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
, extraction of surplus value by the owning class for the purpose of
capital accumulation, Wage labour, wage-based labor and, at least as far as Commodity, commodities are concerned, being Market economy, market-based.
Capitalism in the form of money-making activity has existed in the shape of merchants and money-lenders who acted as intermediaries between consumers and producers engaging in simple commodity production (hence the reference to "merchant capitalism") since the beginnings of civilisation. What is specific about the "capitalist mode of production" is that most of the inputs and outputs of production are supplied through the market (i.e. they are commodities) and essentially all production is in this mode.
By contrast, in flourishing feudalism most or all of the factors of production, including labor, are owned by the feudal ruling class outright and the products may also be consumed without a market of any kind, it is production for use within the feudal social unit and for limited trade.
This has the important consequence that, under capitalism, the whole organisation of the production process is reshaped and re-organised to conform with economic bounded rationality, rationality as bounded by capitalism, which is expressed in price relationships between inputs and outputs (wages, non-labor factor costs, sales and profits) rather than the larger rational context faced by society overall—that is, the whole process is organised and re-shaped in order to conform to "commercial logic". Essentially, capital accumulation comes to define economic rationality in capitalist production.
A society, region or nation is capitalist if the predominant source of incomes and products being distributed is capitalist activity, but even so this does not yet mean necessarily that the capitalist mode of production is dominant in that society.
Role of government
Government agencies regulate the standards of service in many industries, such as airlines and broadcasting, as well as financing a wide range of programs. In addition, the government regulates the flow of capital and uses financial tools such as the interest rate to control such factors as inflation and unemployment.
Supply and demand
![Supply-and-demand](https://upload.wikimedia.org/wikipedia/commons/7/7a/Supply-and-demand.svg)
In capitalist economic structures, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that in a perfect competition, perfectly competitive market, the unit price for a particular Good (economics), good will vary until it settles at a point where the quantity demanded by consumers (at the current price) will equal the quantity supplied by producers (at the current price), resulting in an economic equilibrium for price and Output (economics), quantity.
The "basic laws" of Supply (economics), supply and demand, as described by David Besanko and Ronald Braeutigam, are the following four:
# If demand increases (demand curve shifts to the right) and supply remains unchanged, then a shortage occurs, leading to a higher equilibrium price.
# If demand decreases (demand curve shifts to the left) and supply remains unchanged, then a surplus occurs, leading to a lower equilibrium price.
# If demand remains unchanged and supply increases (supply curve shifts to the right), then a surplus occurs, leading to a lower equilibrium price.
# If demand remains unchanged and supply decreases (supply curve shifts to the left), then a shortage occurs, leading to a higher equilibrium price.
Supply schedule
A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.
Demand schedule
A demand schedule, depicted graphically as the demand curve, represents the amount of some Good (economics), goods that buyers are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, tastes and preferences, the price of substitute goods and the price of complementary goods, remain the same. According to the law of demand, the demand curve is almost always represented as downward-sloping, meaning that as price decreases, consumers will buy more of the good.
[Note that unlike most Graph of a function, graphs, supply & demand curves are plotted with the independent variable (price) on the vertical axis and the dependent variable (quantity supplied or demanded) on the horizontal axis.]
Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves.
Equilibrium
In the context of supply and demand, economic equilibrium refers to a state where economic forces such as supply and demand are balanced and in the absence of external influences the (:wikt:equilibrium, equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium, in this case, refers to a condition where a market price is established through competition such that the amount of goods or services sought by Law of supply and demand, buyers is equal to the amount of goods or services produced by Law of supply and demand, sellers. This price is often called the competitive price or market clearing price, and will tend not to change unless demand or supply changes. The quantity is called "competitive quantity" or market clearing quantity.
Partial equilibrium
Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium. Jain proposes (attributed to George Stigler): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis".
History
According to Hamid S. Hosseini, the "power of supply and demand" was discussed to some extent by several early Muslim scholars, such as fourteenth-century Mamluk scholar Ibn Taymiyyah, who wrote: "If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down".
[ (citing Hamid S. Hosseini, 1995. "Understanding the Market Mechanism Before Adam Smith: Economic Thought in Medieval Islam," ''History of Political Economy'', Vol. 27, No. 3, 539–61).]
![AdamSmith](https://upload.wikimedia.org/wikipedia/commons/0/0a/AdamSmith.jpg)
John Locke's 1691 work ''Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money'' includes an early and clear description of supply and demand and their relationship. In this description, demand is Economic rent, rent: "The price of any commodity rises or falls by the proportion of the number of buyer and sellers" and "that which regulates the price... [of goods] is nothing else but their quantity in proportion to their rent".
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
titled one chapter of his 1817 work ''
Principles of Political Economy and Taxation
'' the Principles of Political Economy and Taxation'' (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory that ...
'' "On the Influence of Demand and Supply on Price".
[Thomas M. Humphrey, 1992. "Marshallian Cross Diagrams and Their Uses before Alfred Marshall", ''Economic Review'', Mar/Apr, Federal Reserve Bank of Richmond, pp]
3–23
.
In ''Principles of Political Economy and Taxation'', Ricardo more rigorously laid down the idea of the assumptions that were used to build his ideas of supply and demand.
In his 1870 essay "On the Graphical Representation of Supply and Demand", Fleeming Jenkin in the course of "introduc[ing] the diagrammatic method into the English economic literature" published the first drawing of supply and demand curves therein, including comparative statics from a shift of supply or demand and application to the labor market. The model was further developed and popularized by Alfred Marshall in the 1890 textbook ''Principles of Economics (Marshall), Principles of Economics''.
Types
There are many variants of capitalism in existence that differ according to country and region. They vary in their institutional makeup and by their economic policies. The common features among all the different forms of capitalism is that they are predominantly based on the private ownership of the means of production and the production of goods and services for profit; the market-based allocation of resources; and the accumulation of capital.
They include advanced capitalism, corporate capitalism, finance capitalism, free-market capitalism, mercantilism, social capitalism, state capitalism and welfare capitalism. Other variants of capitalism include
anarcho-capitalism, community capitalism, humanistic capitalism, neo-capitalism, state monopoly capitalism, and technocapitalism.
Advanced
Advanced capitalism is the situation that pertains to a society in which the capitalist model has been integrated and developed deeply and extensively for a prolonged period. Various writers identify Antonio Gramsci as an influential early theorist of advanced capitalism, even if he did not use the term himself. In his writings, Gramsci sought to explain how capitalism had adapted to avoid the revolutionary overthrow that had seemed inevitable in the 19th century. At the heart of his explanation was the decline of raw coercion as a tool of class power, replaced by use of civil society institutions to manipulate public ideology in the capitalists' favour.
Jürgen Habermas has been a major contributor to the analysis of advanced-capitalistic societies. Habermas observed four general features that characterise advanced capitalism:
# Concentration of industrial activity in a few large firms.
# Constant reliance on the state to stabilise the economic system.
# A formally democratic government that legitimises the activities of the state and dissipates opposition to the system.
# The use of nominal wage increases to pacify the most restless segments of the work force.
Corporate
Corporate capitalism is a free or mixed-market capitalist economy characterized by the dominance of hierarchical, bureaucratic corporations.
Finance
Finance capitalism is the subordination of processes of Production (economics), production to the accumulation of money profits in a financial system. In their critique of capitalism, Marxism and Leninism both emphasise the role of Financial capital, finance capital as the determining and ruling-class interest in capitalist society, particularly in the Crisis of capitalism, latter stages.
Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence through ''Finance Capital'', his 1910 study of the links between German trusts, banks and monopolies—a study subsumed by Vladimir Lenin into ''Imperialism, the Highest Stage of Capitalism'' (1917), his analysis of the imperialist relations of the great world powers. Lenin concluded that the banks at that time operated as "the chief nerve centres of the whole capitalist system of national economy". For the Comintern (founded in 1919), the phrase "dictatorship of finance capitalism" became a regular one.
Fernand Braudel would later point to two earlier periods when finance capitalism had emerged in human history—with the Genoese in the 16th century and with the Dutch in the 17th and 18th centuries—although at those points it developed from commercial capitalism. Giovanni Arrighi extended Braudel's analysis to suggest that a predominance of finance capitalism is a recurring, long-term phenomenon, whenever a previous phase of commercial/industrial capitalist expansion reaches a plateau.
Free-market
A capitalist free-market economy is an economic system where prices for goods and services are set entirely by the forces of supply and demand and are expected, by its adherents, to reach their point of Economic equilibrium, equilibrium without intervention by government policy. It typically entails support for highly Competition (economics), competitive markets and
private ownership of the
means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
. ''Laissez-faire'' capitalism is a more extensive form of this free-market economy, but one in which the role of the state is limited to protecting
property rights
The right to property, or the right to own property (cf. ownership) is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typically h ...
. In Anarcho-capitalism, anarcho-capitalist theory, property rights are protected by private firms and market-generated law. According to anarcho-capitalists, this entails property rights without statutory law through market-generated tort, contract and property law, and self-sustaining private industry.
Fernand Braudel argued that free market exchange and capitalism are to some degree opposed; free market exchange involves Perfect information, transparent public transactions and a large number of Perfect competition, equal competitors, while capitalism involves a small number of participants using their capital to control the market via private transactions, control of information, and limitation of competition.
Mercantile
![Lloyds Subscription Room edited](https://upload.wikimedia.org/wikipedia/commons/2/23/Lloyds_Subscription_Room_edited.jpg)
Mercantilism is a nationalist form of early capitalism that came into existence approximately in the late 16th century. It is characterized by the intertwining of national business interests with state-interest and imperialism. Consequently, the state apparatus is used to advance national business interests abroad. An example of this is colonists living in America who were only allowed to trade with and purchase goods from their respective mother countries (e.g. Britain, France and Portugal). Mercantilism was driven by the belief that the wealth of a nation is increased through a positive balance of trade with other nations—it corresponds to the phase of capitalist development sometimes called the primitive accumulation of capital.
Social
A social market economy is a free-market or mixed-market capitalist system, sometimes classified as a coordinated market economy, where government intervention in price formation is kept to a minimum, but the state provides significant services in areas such as social security, health care, unemployment benefits and the recognition of labor rights through national collective bargaining arrangements.
This model is prominent in Western and Northern European countries as well as Japan, albeit in slightly different configurations. The vast majority of enterprises are privately owned in this economic model.
Rhine capitalism is the contemporary model of capitalism and adaptation of the social market model that exists in continental Western Europe today.
State
State capitalism is a capitalist market economy dominated by state-owned enterprises, where the state enterprises are organized as commercial, profit-seeking businesses. The designation has been used broadly throughout the 20th century to designate a number of different economic forms, ranging from state-ownership in market economies to the command economies of the former Eastern Bloc. According to Aldo Musacchio, a professor at Harvard Business School, state capitalism is a system in which governments, whether democratic or autocratic, exercise a widespread influence on the economy either through direct ownership or various subsidies. Musacchio notes a number of differences between today's state capitalism and its predecessors. In his opinion, gone are the days when governments appointed bureaucrats to run companies: the world's largest state-owned enterprises are now traded on the public markets and kept in good health by large institutional investors. Contemporary state capitalism is associated with the East Asian model of capitalism, dirigisme and the economy of Norway. Alternatively, Merriam-Webster defines state capitalism as "an economic system in which private capitalism is modified by a varying degree of government ownership and control".
In ''Socialism: Utopian and Scientific'', Friedrich Engels argued that state-owned enterprises would characterize the final stage of capitalism, consisting of ownership and management of large-scale production and communication by the Capitalist state, bourgeois state. In his writings, Vladimir Lenin characterized the economy of Soviet Russia as state capitalist, believing state capitalism to be an early step toward the development of socialism.
Some economists and left-wing academics including Richard D. Wolff and Noam Chomsky, as well as many Marxist philosophers and revolutionaries such as Raya Dunayevskaya and C.L.R. James, argue that the economies of the former Soviet Union and Eastern Bloc represented a form of state capitalism because their internal organization within enterprises and the system of wage labor remained intact.
The term is not used by Austrian School economists to describe state ownership of the means of production. The economist Ludwig von Mises argued that the designation of state capitalism was a new label for the old labels of state socialism and planned economy and differed only in non-essentials from these earlier designations.
The debate between proponents of private versus state capitalism is centered around questions of managerial efficacy, productive efficiency and fair distribution of wealth.
Welfare
Welfare capitalism is capitalism that includes social welfare policies. Today, welfare capitalism is most often associated with the models of capitalism found in Central Mainland and Northern Europe such as the Nordic model, social market economy and Rhine capitalism. In some cases, welfare capitalism exists within a mixed economy, but welfare states can and do exist independently of policies common to mixed economies such as state interventionism and extensive regulation.
A mixed economy is a largely market-based capitalist economy consisting of both private and public ownership of the means of production and economic interventionism through macroeconomic policies intended to correct market failures, reduce unemployment and keep inflation low. The degree of intervention in markets varies among different countries. Some mixed economies such as France under dirigisme also featured a degree of Indicative planning, indirect economic planning over a largely capitalist-based economy.
Most modern capitalist economies are defined as mixed economies to some degree.
Eco-capitalism
Eco-capitalism, also known as "environmental capitalism" or (sometimes) "green capitalism", is the view that capital (economics), capital exists in nature as "natural capital" (ecosystems that have ecological yield) on which all wealth depends. Therefore, governments should use Market (economics), market-based policy instruments, policy-instruments (such as a carbon tax) to resolve environmental problems.
The term "Blue Greens" is often applied to those who espouse eco-capitalism. Eco-capitalism can be thought of as the right-wing equivalent to Eco-socialism, Red Greens.
Sustainable capitalism
Sustainable capitalism is a conceptual form of capitalism based upon Sustainability, sustainable practices that seek to preserve humanity and the planet, while reducing Externality, externalities and bearing a resemblance of capitalist economic policy. A capitalistic economy must expand to survive and find new markets to support this expansion. Capitalist systems are often destructive to the environment as well as certain individuals without access to proper representation. However, sustainability provides quite the opposite; it implies not only a continuation, but a resource depletion, replenishing of resources. Sustainability is often thought of to be related to environmentalism, and sustainable capitalism applies sustainable principles to economic governance and social aspects of capitalism as well.
The importance of sustainable capitalism has been more recently recognized, but the concept is not new. Changes to the current economic model would have heavy social environmental and economic implications and require the efforts of individuals, as well as compliance of local, state and federal governments. Controversy surrounds the concept as it requires an increase in sustainable practices and a marked decrease in current consumptive behaviors.
This is a concept of capitalism described in Al Gore and David Blood’s manifesto for the Generation Investment Management to describe a long-term political, economic and social structure which would mitigate current threats to the planet and society.
According to their manifesto, sustainable capitalism would integrate the environmental, social and governance (Environmental, social and corporate governance, ESG) aspects into risk assessment in attempt to limit externalities.
Most of the ideas they list are related to economic changes, and social aspects, but strikingly few are explicitly related to any environmental policy change.
Capital accumulation
The accumulation of capital is the process of "making money", or growing an initial sum of money through investment in production. Capitalism is based on the accumulation of capital, whereby financial capital is invested in order to make a profit and then reinvested into further production in a continuous process of accumulation. In Marxian economic theory, this dynamic is called the law of value. Capital accumulation forms the basis of capitalism, where economic activity is structured around the accumulation of
capital, defined as investment in order to realize a financial profit.
In this context, "capital" is defined as money or a financial asset invested for the purpose of making more money (whether in the form of profit, rent, interest, royalties, capital gain or some other kind of return).
In mainstream economics, accounting and Marxian economics, capital accumulation is often equated with investment (macroeconomics), investment of profit income or savings, especially in real vs. nominal in economics, real capital goods. The concentration and centralisation of capital are two of the results of such accumulation. In modern macroeconomics and econometrics, the phrase "capital formation" is often used in preference to "accumulation", though the United Nations Conference on Trade and Development (UNCTAD) refers nowadays to "accumulation". The term "accumulation" is occasionally used in national accounts.
Wage labor
![Worker 9](https://upload.wikimedia.org/wikipedia/commons/f/ff/Worker_9.JPG)
Wage labor refers to the sale of Labour economics, labor under a formal or informal employment contract to an employer.
These transactions usually occur in a labour market, labor market where wages are market determined. Individuals who possess and supply financial capital to productive ventures often become owners, either jointly (as shareholders) or individually. In Marxist economics, these owners of the means of production and suppliers of capital are generally called capitalists. The description of the role of the capitalist has shifted, first referring to a useless intermediary between producers, then to an employer of producers, and finally to the owners of the means of production.
Labor (economics), Labor includes all physical and mental human resources, including entrepreneurial capacity and management skills, which are required to produce products and services. Production (economics), Production is the act of making goods or services by applying labor power.
Criticism
![Anti-capitalism color— Restored](https://upload.wikimedia.org/wikipedia/commons/2/26/Anti-capitalism_color%E2%80%94_Restored.png)
Criticism of capitalism comes from various political and philosophical approaches, including anarchist, socialist, religious and nationalist viewpoints. Of those who oppose it or want to modify it, some believe that capitalism should be removed through revolution while others believe that it should be changed slowly through Reformism, political reforms.
Prominent critiques of capitalism allege that it is inherently Exploitation of labour, exploitative,
Marx's theory of alienation, alienating, unstable,
unsustainable,
and Economic efficiency, economically inefficient
—and that it creates massive economic inequality,
commodity, commodifies people,
environmental degradation, degrades the environment,
is anti-democratic,
and leads to an erosion of
human rights
Human rights are moral principles or normsJames Nickel, with assistance from Thomas Pogge, M.B.E. Smith, and Leif Wenar, 13 December 2013, Stanford Encyclopedia of PhilosophyHuman Rights Retrieved 14 August 2014 for certain standards of hu ...
because of its wikt:incentivize, incentivization of imperialist expansion and military–industrial complex, war.
[Lenin’s Selected Works, Progress Publishers, 1963, Moscow, Volume 1, pp. 667–766]
See also
* Anti-capitalism
* Advanced capitalism
* Ancient economic thought
* Bailout Capitalism
* Capitalism (disambiguation)
* Christian views on poverty and wealth
* Communism
* Corporatocracy
* Crony capitalism
* Economic sociology
* Free market
* Global financial crisis in September 2008
* Humanistic economics
* Invisible hand
* Late capitalism
* ''Le Livre noir du capitalisme''
* Market socialism
* Perspectives on capitalism by school of thought
* Post-capitalism
* Post-Fordism
* Racial capitalism
* Rent-seeking
* State monopoly capitalism
* Surveillance capitalism
* Perestroika
References
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* Krahn, Harvey J., and Graham S. Lowe (1993). ''Work, Industry, and Canadian Society''. Second ed. Scarborough, Ont.: Nelson Canada. xii, 430 p.
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Further reading
* Gar Alperovitz, Alperovitz, Gar (2011). ''America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy, 2nd Edition.'' Democracy Collaborative Press. .
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* Ascher, Ivan. ''Portfolio Society: On the Capitalist Mode of Prediction.'' Zone Books, 2016.
* Edward E. Baptist, Baptist, Edward E. ''The Half Has Never Been Told: Slavery and the Making of American Capitalism.'' New York, Basic Books, 2014. .
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* Braudel, Fernand. ''Civilization and Capitalism''.
* Callinicos, Alex. "Wage Labour and State Capitalism – A reply to Peter Binns and Mike Haynes", ''International Socialism'', second series, 12, Spring 1979.
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* Farl, Erich. "The Genealogy of State Capitalism". In: ''International'' London, vol. 2, no. 1, 1973.
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* Gough, Ian.
State Expenditure in Advanced Capitalism'' New Left Review.
* Jürgen Habermas, Habermas, J. [1973] ''Legitimation Crisis'' (eng. translation by T. McCarthy). Boston, Beacon
From Google books
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* Hyman, Louis and Edward E. Baptist (2014). ''American Capitalism: A Reader.'' Simon & Schuster. .
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* Jameson, Fredric (1991). ''Postmodernism, or, the Cultural Logic of Late Capitalism''.
* Kotler, Philip (2015). ''Confronting Capitalism: Real Solutions for a Troubled Economic System.'' AMACOM.
* Mandel, Ernest (1999). ''Late Capitalism.''
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* Marcel van der Linden, ''Western Marxism and the Soviet Union''. New York, Brill Publishers, 2007.
* Mayfield, Anthony. "Economics", in his ''On the Brink: Resource Depletion, Debt Collapse, and Super-technology'' ([Vancouver, B.C., Canada]: On the Brink Publishing, 2013), pp. 50–104.
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* Panitch, Leo, and Sam Gindin (2012). ''The Making of Global Capitalism: the Political Economy of American Empire''. London, Verso. .
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* Karl Polanyi, Polanyi, Karl (2001). ''The Great Transformation (book), The Great Transformation: The Political and Economic Origins of Our Time.'' Beacon Press; 2nd ed.
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* Jay W. Richards, Richards, Jay W. (2009). ''Money, Greed, and God: Why Capitalism is the Solution and Not the Problem''. New York: HarperOne.
* Paul Craig Roberts, Roberts, Paul Craig (2013). ''The Failure of Laissez-faire Capitalism: towards a New Economics for a Full World''. Atlanta, Ga.: Clarity Press.
* William I. Robinson, Robinson, William I. ''Global Capitalism and the Crisis of Humanity.'' Cambridge University Press, 2014.
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* Hoevet, Ocean
"Capital as a Social Relation"(New Palgrave article)
* Werner Sombart, Sombart, Werner (1916) ''Der moderne Kapitalismus. Historisch-systematische Darstellung des gesamteuropäischen Wirtschaftslebens von seinen Anfängen bis zur Gegenwart.'' Final edn. 1916, repr. 1969, paperback edn. (3 vols. in 6): 1987 Munich: dtv. (Also in Spanish; no English translation yet.)
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External links
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Capitalismat ''Encyclopædia Britannica'' Online.
Selected Titles on Capitalism and Its Discontents Harvard University Press.
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