economic system
An economic system, or economic order, is a system of Production (economics), production, resource allocation and Distribution (economics), distribution of goods and services within a society or a given geographic area. It includes the combinati ...
based on the
private ownership
Private property is a legal designation for the ownership of property by non-governmental Legal personality, legal entities. Private property is distinguishable from public property and Personal property, personal property, which is owned by a s ...
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
Profit may refer to:
Business and law
* Profit (accounting), the difference between the purchase price and the costs of bringing to market
* Profit (economics), normal profit and economic profit
* Profit (real property), a nonpossessory intere ...
. Central characteristics of capitalism include
capital accumulation
Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form o ...
,
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
Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property and personal property, which is owned by a state entity, and from collective or ...
,
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 ...
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 mainstr ...
, 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 a ...
. In a
market economy
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 ...
, decision-making and investments are determined by owners of wealth, property, or ability to maneuver capital or production ability in
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
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 markets ...
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 sciences, 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 ...
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 stu ...
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 mar ...
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
Anarcho-capitalism (or, colloquially, ancap) is an anti-statist, libertarian, and anti-political philosophy and economic theory that seeks to abolish centralized states in favor of stateless societies with systems of private property enforce ...
,
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 a ...
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
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private p ...
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 o ...
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, indivi ...
in
markets
Market is a term used to describe concepts such as:
* Market (economics), system in which parties engage in transactions according to supply and demand
* Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, a ...
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. For ...
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 economies ...
that combine elements of free markets with state intervention and in some cases
economic planning
Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources b ...
.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 (polity), state.
In the case of its broad associative definition, government normally consists of legislature, Executive (government), e ...
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 state (polity), states in the regions of Europe, North America, and Oceania.
and continue to spread.
Economic growth
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
is a characteristic tendency of capitalist economies.
Etymology
The term "capitalist", meaning an owner of
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
, 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 mal ...
" 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
Étienne Clavier (26 December 1762 in Lyon – 18 November 1817 in Paris) was a French Hellenist and magistrate.
The son of a wealthy merchant of Lyon, he made early studies of the Classical languages, followed by studies of law in Paris. In 1 ...
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 economy, political economist. He was one of the most influential of the Classical economics, classical economists along with Thomas Robert Malthus, Thomas Malthus, Ad ...
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 Poe ...
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
Benjamin Disraeli, 1st Earl of Beaconsfield, (21 December 1804 – 19 April 1881) was a British statesman and Conservative politician who twice served as Prime Minister of the United Kingdom. He played a central role in the creation o ...
used the term in his 1845 work ''
Sybil
Sibyls were oracular women believed to possess prophetic powers in ancient Greece.
Sybil or Sibyl may also refer to:
Films
* ''Sybil'' (1921 film)
* ''Sybil'' (1976 film), a film starring Sally Field
* ''Sybil'' (2007 film), a remake of the 19 ...
''.
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. Alth ...
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
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
" 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 Historical mater ...
'' (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
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
, ''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
Individualism is the moral stance, political philosophy, ideology and social outlook that emphasizes the intrinsic worth of the individual. Individualists promote the exercise of one's goals and desires and to value independence and self-relianc ...
.
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
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
" 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 is ...
, 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 com ...
'' (OED), in 1854, in the novel ''
The Newcomes
''The Newcomes: Memoirs of a Most Respectable Family'' is a novel by William Makepeace Thackeray, first published in 1854 and 1855.
Publication
''The Newcomes'' was published serially over about two years, as Thackeray himself says in one of t ...
'' 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
German Americans (german: Deutschamerikaner, ) are Americans who have full or partial German ancestry. With an estimated size of approximately 43 million in 2019, German Americans are the largest of the self-reported ancestry groups by the Unite ...
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 e ...
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
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 marking the transition from the Middle Ages to modernity and covering the 15th and 16th centuries, characterized by an effort to revive and surpass ideas ...
, in city-states like
Florence
Florence ( ; it, Firenze ) is a city in Central Italy and the capital city of the Tuscany region. It is the most populated city in Tuscany, with 383,083 inhabitants in 2016, and over 1,520,000 in its metropolitan area.Bilancio demografico an ...
.
Capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
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
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
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, DIN 31635: , Arabic pronunciation: ), also known as the Arab people, are an ethnic group mainly inhabiting the Arab world in Wester ...
promulgated capitalist economic policies such as free trade and banking. Their use of
Indo-Arabic numerals
Arabic numerals are the ten numerical digits: , , , , , , , , and . They are the most commonly used symbols to write decimal numbers. They are also used for writing numbers in other systems such as octal, and for writing identifiers such as ...
facilitated
bookkeeping
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organizations. It involves preparing source documents for all transactions, operations, and other events of a business. Tr ...
. 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 Western ...
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
Serfdom was the status of many peasants under feudalism, specifically relating to manorialism, and similar systems. It was a condition of debt bondage and indentured servitude with similarities to and differences from slavery, which developed ...
-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
Aristocracy (, ) is a form of government that places strength in the hands of a small, privileged ruling class, the aristocracy (class), aristocrats. The term derives from the el, αριστοκρατία (), meaning 'rule of the best'.
At t ...
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
The economic doctrine prevailing from the 16th to the 18th centuries is commonly called
mercantilism
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...
. 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".
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 personifi ...
(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 be ...
'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
merchant
A merchant is a person who trades in commodities produced by other people, especially one who trades with foreign countries. Historically, a merchant is anyone who is involved in business or trade. Merchants have operated for as long as indust ...
s, 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 par ...
, 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 Southea ...
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 Nam ...
, 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
Expansionism refers to states obtaining greater territory through military empire-building or colonialism.
In the classical age of conquest moral justification for territorial expansion at the direct expense of another established polity (who of ...
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
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 philo ...
(1711–1776) and
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
(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 empl ...
of manufacturing, characterized by a complex
division of labor
The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...
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 young ...
(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 Laws ...
(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 polic ...
. 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 were ...
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 econo ...
.
Modernity
Broader processes of
globalization
Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
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 economi ...
as its dominant form in the industrialized Western world.
Industrialization
Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organisation of an econo ...
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
Population growth is the increase in the number of people in a population or dispersed group. Actual global human population growth amounts to around 83 million annually, or 1.1% per year. The global population has grown from 1 billion in 1800 to ...
created sustained demand for commodities. The
imperialism
Imperialism is the state policy, practice, or advocacy of extending power and dominion, especially by direct territorial acquisition or by gaining political and economic control of other areas, often through employing hard power (economic and ...
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 War
The Second Opium War (), also known as the Second Anglo-Sino War, the Second China War, the Arrow War, or the Anglo-French expedition to China, was a colonial war lasting from 1856 to 1860, which pitted the British Empire and the French Emp ...
s (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, and ...
,
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, b ...
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 dea ...
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 la ...
. 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
Newfoundland and Labrador (; french: Terre-Neuve-et-Labrador; frequently abbreviated as NL) is the easternmost province of Canada, in the country's Atlantic region. The province comprises the island of Newfoundland and the continental region ...
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 ...
radiotelephone
A radiotelephone (or radiophone), abbreviated RT, is a radio communication system for conducting a conversation; radiotelephony means telephony by radio. It is in contrast to '' radiotelegraphy'', which is radio transmission of telegrams (mes ...
, the
steamship
A steamship, often referred to as a steamer, is a type of steam-powered vessel, typically ocean-faring and seaworthy, that is propelled by one or more steam engines that typically move (turn) propellers or paddlewheels. The first steamships ...
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.
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
Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual. Standard of living is relevant because it is considered to contribute to an individual's quality ...
(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 Interna ...
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
The middle class refers to a class of people in the middle of a social hierarchy, often defined by occupation, income, education, or social status. The term has historically been associated with modernity, capitalism and political debate. Comm ...
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 (UK), Labour Party thinking. It was the seminal work of the 'revisionist' school of Labour politics.
The boo ...
'' 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 action ...
.
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 measures ...
, 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 and ...
that is more compatible with ''laissez-faire'' analyses, gained increasing prominence in the capitalist world, especially under the years in office of
Ronald Reagan
Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician, actor, and union leader who served as the 40th president of the United States from 1981 to 1989. He also served as the 33rd governor of California from 1967 ...
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 (UK), Leader of the Conservative Party from 1975 to 1990. S ...
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 giv ...
, called "remarketized capitalism".
The end of the
Cold War
The Cold War is a term commonly used to refer to a period of geopolitical tension between the United States and the Soviet Union and their respective allies, the Western Bloc and the Eastern Bloc. The term '' cold war'' is used because the ...
and the
dissolution of the Soviet Union
The dissolution of the Soviet Union, also negatively connoted as rus, Разва́л Сове́тского Сою́за, r=Razvál Sovétskogo Soyúza, ''Ruining of the Soviet Union''. was the process of internal disintegration within the Sov ...
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
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
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 s ...
.
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
The relationship between
democracy
Democracy (From grc, δημοκρατία, dēmokratía, ''dēmos'' 'people' and ''kratos'' 'rule') is a form of government in which the people have the authority to deliberate and decide legislation (" direct democracy"), or to choose gov ...
and capitalism is a contentious area in theory and in popular political movements. The extension of adult-male
suffrage
Suffrage, political franchise, or simply franchise, is the right to vote in representative democracy, public, political elections and referendums (although the term is sometimes used for any right to vote). In some languages, and occasionally i ...
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 represen ...
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
Fascism is a far-right, Authoritarianism, authoritarian, ultranationalism, ultra-nationalist political Political ideology, ideology and Political movement, movement,: "extreme militaristic nationalism, contempt for electoral democracy and pol ...
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 ...
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 st ...
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
Authoritarianism is a political system characterized by the rejection of political plurality, the use of strong central power to preserve the political ''status quo'', and reductions in the rule of law, separation of powers, and democratic votin ...
régimes have been able to manage economic growth using some of capitalism's competitive principles without making concessions to greater
political freedom
Political freedom (also known as political autonomy or political agency) is a central concept in history and political thought and one of the most important features of democratic societies.Hannah Arendt, "What is Freedom?", ''Between Past and F ...
.
Political scientists
Torben Iversen
Torben Iversen is a Danish political economist, currently Harold Hitchings Burbank Professor of Political Economy at Harvard University. In 2016, he was named BP Centennial Professor at the London School of Economics
The London School of Econom ...
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
Political freedom (also known as political autonomy or political agency) is a central concept in history and political thought and one of the most important features of democratic societies.Hannah Arendt, "What is Freedom?", ''Between Past and F ...
. 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
Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician, actor, and union leader who served as the 40th president of the United States from 1981 to 1989. He also served as the 33rd governor of California from 1967 ...
also promoted this view. Friedman claimed that centralized economic operations are always accompanied by
political repression
Political repression is the act of a state entity controlling a citizenry by force for political reasons, particularly for the purpose of restricting or preventing the citizenry's ability to take part in the political life of a society, thereb ...
. 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
Freedom House is a non-profit, majority U.S. government funded organization in Washington, D.C., that conducts research and advocacy on democracy, political freedom, and human rights. Freedom House was founded in October 1941, and Wendell Wil ...
, 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 org ...
that conducts international research on, and advocates for, democracy, political freedom and
human rights
Human rights are Morality, moral principles or Social norm, 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 ce ...
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 Int ...
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, in ...
asserted that inequality is the inevitable consequence of economic growth in a capitalist economy and the resulting 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
Augusto José Ramón Pinochet Ugarte (, , , ; 25 November 1915 – 10 December 2006) was a Chilean general who ruled Chile from 1973 to 1990, first as the leader of the Military Junta of Chile from 1973 to 1981, being declared President of ...
's 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
Suharto (; ; 8 June 1921 – 27 January 2008) was an Indonesian army officer and politician, who served as the second and the longest serving president of Indonesia. Widely regarded as a military dictator by international observers, Suharto ...
's authoritarian reign and
extirpation
Local extinction, also known as extirpation, refers to a species (or other taxon) of plant or animal that ceases to exist in a chosen geographic area of study, though it still exists elsewhere. Local extinctions are contrasted with global extinct ...
of the
Communist Party of Indonesia
The Communist Party of Indonesia (Indonesian: ''Partai Komunis Indonesia'', PKI) was a communist party in Indonesia during the mid-20th century. It was the largest non-ruling communist party in the world before its violent disbandment in 1965. ...
allowed for the expansion of capitalism in
Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...
.
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
''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 Historical mater ...
Marxism
Marxism is a Left-wing politics, left-wing to Far-left politics, far-left method of socioeconomic analysis that uses a Materialism, materialist interpretation of historical development, better known as historical materialism, to understand S ...
. 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
investor
An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...
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
Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form o ...
: 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.
* Commodity production: production for exchange on a market; to maximize
exchange-value
In political economy and especially Marxian economics, exchange value (German: ''Tauschwert'') refers to one of the four major attributes of a commodity, i.e., an item or service produced for, and sold on the market, the other three attributes be ...
instead of
use-value
Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxist economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or ...
.
*
Private ownership
Private property is a legal designation for the ownership of property by non-governmental Legal personality, legal entities. Private property is distinguishable from public property and Personal property, personal property, which is owned by a s ...
of the means of production:
* High levels of
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 a ...
.
* The
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
of money to make a profit.
* The use of the
price mechanism
In economics, a price mechanism is the manner in which the profits of goods or services affects the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyer and seller who nego ...
to allocate resources between competing uses.
* Economically efficient use of the
factors of production
In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relat ...
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 o ...
and ''
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. ...
'' 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 failure
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...
s, promote
social welfare
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet Basic needs, basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refe ...
, conserve
natural resource
Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. O ...
s, fund
defense
Defense or defence may refer to:
Tactical, martial, and political acts or groups
* Defense (military), forces primarily intended for warfare
* Civil defense, the organizing of civilians to deal with emergencies or enemy attacks
* Defense industr ...
and
public safety
Public security or public safety is the prevention of and protection from events that could endanger the safety and security of the public from significant danger, injury, or property damage. It is often conducted by a state government to ensure ...
or other rationale. In
state capitalist
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 ac ...
systems, markets are relied upon the least, with the state relying heavily on
state-owned enterprises
A state-owned enterprise (SOE) is a government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn profit for the governmen ...
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.
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 ...
or
cartels
A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mo ...
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
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...
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
The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.
Th ...
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
socioeconomic
Socioeconomics (also known as social economics) is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how modern societies progress, stagnate, or regress because of their local ...
relationship between a
worker
The working class (or labouring class) comprises those engaged in manual labour, manual-labour occupations or industrial work, who are remunerated via wage, waged or salary, salaried contracts. Working-class occupations (see also "Designation ...
and an
employer
Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
in which the worker sells their labor power under a formal or informal
employment contract
An employment contract or contract of employment is a kind of contract used in labour law to attribute rights and responsibilities between parties to a bargain.
The contract is between an "employee" and an "employer". It has arisen out of the old ...
.: "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 labor market where
wage
A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', ''prevailing wage'', and ''yearly bonuses,'' and remuner ...
s or
salaries
A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis.
F ...
are 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 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 economics, the profit motive is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is "to make money" - not in the sense of increasing the firm's s ...
, 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
Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
, 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
The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian school ...
Henry Hazlitt
Henry Stuart Hazlitt (; November 28, 1894 – July 9, 1993) was an American journalist who wrote about business and economics for such publications as ''The Wall Street Journal'', ''The Nation'', ''The American Mercury'', ''Newsweek'', and '' ...
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
State may refer to:
Arts, entertainment, and media Literature
* ''State Magazine'', a monthly magazine published by the U.S. Department of State
* ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States
* ''Our S ...
, 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
Hernando de Soto (; ; 1500 – 21 May, 1542) was a Spanish explorer and '' conquistador'' who was involved in expeditions in Nicaragua and the Yucatan Peninsula. He played an important role in Francisco Pizarro's conquest of the Inca Empire ...
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
The Inclosure Acts, which use an archaic spelling of the word now usually spelt "enclosure", cover enclosure of open fields and common land in England and Wales, creating legal property rights to land previously held in common. Between 1604 and 1 ...
in England and similar legislation elsewhere were an integral part of capitalist
primitive accumulation
In Marxian economics and preceding theories,Perelman, p. 25 (ch. 2) the problem of primitive accumulation (also called previous accumulation, original accumulation) of capital concerns the origin of capital, and therefore of how class distinct ...
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
Eminent domain (United States, Philippines), land acquisition (India, Malaysia, Singapore), compulsory purchase/acquisition (Australia, New Zealand, Ireland, United Kingdom), resumption (Hong Kong, Uganda), resumption/compulsory acquisition (Austr ...
.
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
The term "marketing mix" is a foundation model for businesses, historically centered around product, price, place, and promotion (also known as the "4 Ps"). The marketing mix has been defined as the "set of marketing tools that the firm uses to ...
: 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
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
in ''
The Wealth of Nations
''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the ''magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in 1 ...
'' (1776) and later economists as allocating productive
resource
Resource refers to all the materials available in our environment which are technologically accessible, economically feasible and culturally sustainable and help us to satisfy our needs and wants. Resources can broadly be classified upon their ...
s to their most highly valued uses and encouraging
efficiency
Efficiency is the often measurable ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without ...
. Smith and other
classical economist
Classical economics, classical political economy, or Smithian economics is a school of thought in political economy that flourished, primarily in Kingdom of Great Britain, Britain, in the late 18th and early-to-mid 19th century. Its main thinkers ...
s before 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 equilibrium. Competition is widespread throughout the
market process
Market is a term used to describe concepts such as:
* Market (economics), system in which parties engage in transactions according to supply and demand
* Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, a ...
. 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
In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...
, 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
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
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
societies
A society is a group of individuals involved in persistent social interaction, or a large social group sharing the same spatial or social territory, typically subject to the same political authority and dominant cultural expectations. Societi ...
. 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 ownership
Private property is a legal designation for the ownership of property by non-governmental Legal personality, legal entities. Private property is distinguishable from public property and Personal property, personal property, which is owned by a s ...
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
In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost ...
by the owning class for the purpose of
capital accumulation
Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form o ...
commodities
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
are concerned, being
market-based
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 ...
.
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
Simple commodity production (german: einfache Warenproduktion), also known as petty commodity production, is a term coined by Friedrich Engels to describe productive activities under the conditions of what Karl Marx had called the "simple exchange" ...
(hence the reference to "
merchant capitalism
Some economic historians use the term merchant capitalism to refer to the earliest phase in the development of capitalism as an economic and social system. However, others argue that mercantilism, which has flourished widely in the world without ...
") 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 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
A nation is a community of people formed on the basis of a combination of shared features such as language, history, ethnicity, culture and/or society. A nation is thus the collective identity of a group of people understood as defined by those ...
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
In capitalist economic structures, supply and demand is an
economic model
In economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework desig ...
of
price determination
Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acqui ...
in a
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
. It postulates that in a
perfectly competitive market
In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In theoretical models whe ...
, the
unit price
A product's average price is the result of dividing the product's total sales revenue by the total units sold. When one product is sold in variants, such as bottle sizes, managers must define "comparable" units. Average prices can be calculated b ...
for a particular
good
In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil and is of interest in the study of ethics, morality, ph ...
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
In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the st ...
for price and
quantity
Quantity or amount is a property that can exist as a Counting, multitude or Magnitude (mathematics), magnitude, which illustrate discontinuity (mathematics), discontinuity and continuum (theory), continuity. Quantities can be compared in terms o ...
.
The "basic laws" of
supply
Supply may refer to:
*The amount of a resource that is available
**Supply (economics), the amount of a product which is available to customers
**Materiel, the goods and equipment for a military unit to fulfill its mission
*Supply, as in confidenc ...
and
demand
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
, 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
In economics, a demand curve is a graph depicting the relationship between the price of a certain commodity (the ''y''-axis) and the quantity of that commodity that is demanded at that price (the ''x''-axis). Demand curves can be used either for ...
, represents the amount of some
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...
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 good
In microeconomics, two goods are substitutes if the products could be used for the same purpose by the consumers. That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less ...
s and the price of
complementary good
In economics, a complementary good is a good whose appeal increases with the popularity of its complement. Technically, it displays a negative cross elasticity of demand and that demand for it increases when the price of another good decreases. I ...
s, remain the same. According to the
law of demand
In microeconomics, the law of demand is a fundamental principle which states that there is an inverse relationship between price and quantity demanded. In other words, "conditional on all else being equal, as the price of a good increases (↑), q ...
, 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
graphs
Graph may refer to:
Mathematics
*Graph (discrete mathematics), a structure made of vertices and edges
**Graph theory, the study of such graphs and their properties
*Graph (topology), a topological space resembling a graph in the sense of discre ...
, 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
In economics, the marginal cost is the change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity. In some contexts, it refers to an increment of one unit of output, and in others it r ...
curves, demand curves are determined by
marginal utility
In economics, utility is the satisfaction or benefit derived by consuming a product. The marginal utility of a Goods (economics), good or Service (economics), service describes how much pleasure or satisfaction is gained by consumers as a result o ...
curves.
Equilibrium
In the context of supply and demand, economic equilibrium refers to a state where economic forces such as
supply and demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the standard text-book model of
perfect competition
In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In Economic model, theoret ...
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
buyers
Procurement is the method of discovering and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agency buys goods or servi ...
is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or
market clearing
In economics, market clearing is the process by which, in an economic market, the supply of whatever is traded is equated to the demand so that there is no excess supply or demand. The new classical economics assumes that in any given market, assum ...
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
George Joseph Stigler (; January 17, 1911 – December 1, 1991) was an American economist. He was the 1982 laureate in Nobel Memorial Prize in Economic Sciences and is considered a key leader of the Chicago school of economics.
Early life and ...
): "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
Mamluk ( ar, مملوك, mamlūk (singular), , ''mamālīk'' (plural), translated as "one who is owned", meaning " slave", also transliterated as ''Mameluke'', ''mamluq'', ''mamluke'', ''mameluk'', ''mameluke'', ''mamaluke'', or ''marmeluke'') ...
scholar
Ibn Taymiyyah
Ibn Taymiyyah (January 22, 1263 – September 26, 1328; ar, ابن تيمية), birth name Taqī ad-Dīn ʾAḥmad ibn ʿAbd al-Ḥalīm ibn ʿAbd al-Salām al-Numayrī al-Ḥarrānī ( ar, تقي الدين أحمد بن عبد الحليم ...
, 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).
John Locke
John Locke (; 29 August 1632 – 28 October 1704) was an English philosopher and physician, widely regarded as one of the most influential of Age of Enlightenment, Enlightenment thinkers and commonly known as the "father of liberalism ...
'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
rent
Rent may refer to:
Economics
*Renting, an agreement where a payment is made for the temporary use of a good, service or property
*Economic rent, any payment in excess of the cost of production
*Rent-seeking, attempting to increase one's share of e ...
: "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 economy, political economist. He was one of the most influential of the Classical economics, classical economists along with Thomas Robert Malthus, Thomas Malthus, Ad ...
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
Anarcho-capitalism (or, colloquially, ancap) is an anti-statist, libertarian, and anti-political philosophy and economic theory that seeks to abolish centralized states in favor of stateless societies with systems of private property enforce ...
, 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
Marxism is a Left-wing politics, left-wing to Far-left politics, far-left method of socioeconomic analysis that uses a Materialism, materialist interpretation of historical development, better known as historical materialism, to understand S ...
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
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
and are expected, by its adherents, to reach their point of equilibrium without intervention by government policy. It typically entails support for highly Competition (economics), competitive markets and
private ownership
Private property is a legal designation for the ownership of property by non-governmental Legal personality, legal entities. Private property is distinguishable from public property and Personal property, personal property, which is owned by a s ...
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 ...
. 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
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
Friedrich Engels ( ,"Engels" '' market failure
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...
s, 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
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
, 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
Wage labor refers to the sale of Labour economics, labor under a formal or informal
employment contract
An employment contract or contract of employment is a kind of contract used in labour law to attribute rights and responsibilities between parties to a bargain.
The contract is between an "employee" and an "employer". It has arisen out of the old ...
to an employer. These transactions usually occur in a labour market, labor market where
wage
A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', ''prevailing wage'', and ''yearly bonuses,'' and remuner ...
s 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
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 Morality, moral principles or Social norm, 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 ce ...
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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Capitalism at ''Encyclopædia Britannica'' Online.
Selected Titles on Capitalism and Its Discontents Harvard University Press.
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