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Capitalism is an economic system based on the
private ownership 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 co ...
of the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
and their operation for profit. Central characteristics of capitalism include
capital accumulation 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) fir ...
s, price system,
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 c ...
, property rights 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 mainst ...
, 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, 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 fo ...
and financial markets—whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
Economist An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
s, historians, political economists and sociologists have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include '' laissez-faire'' or free-market capitalism,
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 enforc ...
,
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. Different forms of capitalism feature varying degrees of
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ...
s, public ownership, obstacles to free competition and state-sanctioned social policies. 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, an ...
and the role of intervention and regulation 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. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
and in many different times, places and cultures. Modern capitalist societies developed in Western Europe in a process that led to the Industrial Revolution. Capitalist systems with varying degrees of direct government intervention have since become dominant in the Western world 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 fo ...
, appears earlier than the term "capitalism" and dates to the mid-17th century. "Capitalism" is derived from ''capital'', which evolved from , a late Latin word based on , meaning "head"—which is also the origin of " chattel" and "
cattle Cattle (''Bos taurus'') are large, domesticated, cloven-hooved, herbivores. They are a prominent modern member of the subfamily Bovinae and the most widespread species of the genus ''Bos''. Adult females are referred to as cows and adult ma ...
" in the sense of movable property (only much later to refer only to livestock). emerged in the 12th to 13th centuries to refer to funds, stock of merchandise, sum of money or money carrying interest.James Augustus Henry Murray. "Capital"
A New English Dictionary on Historical Principles
''Oxford English Press''. 2. p. 93.
By 1283, it was used in the sense of the capital assets of a trading firm and was often interchanged with other words—wealth, money, funds, goods, assets, property and so on. The ''Hollantse (german: holländische) Mercurius'' uses "capitalists" in 1633 and 1654 to refer to owners of capital. In French, Étienne Clavier referred to ''capitalistes'' in 1788, four years before its first recorded English usage by Arthur Young in his work ''Travels in France'' (1792). In his ''
Principles of Political Economy and Taxation '' the Principles of Political Economy and Taxation'' (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory tha ...
'' (1817),
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a m ...
referred to "the capitalist" many times. English poet Samuel Taylor Coleridge 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?'' (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 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 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 fo ...
" and to the "capitalist mode of production" in '' Das Kapital'' (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 fo ...
, ''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 p ...
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 fo ...
" that inherently functions in certain ways and is governed by stable economic laws of its own. In the English language, the term "capitalism" first appears, according to the '' Oxford English Dictionary'' (OED), in 1854, in the novel '' The Newcomes'' by novelist William Makepeace Thackeray, 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 abolitionist newspaper editor. Douai was driven from Texas in 1856 due to his published opposition of slavery, living out ...
, a German American socialist 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, in city-states like Florence.
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 fo ...
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 co ...
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,
Arabs The Arabs (singular: Arab; singular ar, عَرَبِيٌّ, DIN 31635: , , plural ar, عَرَب, DIN 31635: , Arabic pronunciation: ), also known as the Arab people, are an ethnic group mainly inhabiting the Arab world in Western Asia, No ...
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. T ...
. These innovations migrated to Europe through trade partners in cities such as Venice and Pisa. The Italian mathematician Fibonacci traveled the Mediterranean talking to Arab traders and returned to popularize the use of Indo-Arabic numerals in Europe.


Agrarianism

The economic foundations of the feudal agricultural system began to shift substantially in 16th-century England as the
manorial system Manorialism, also known as the manor system or manorial system, was the method of land ownership (or "tenure") in parts of Europe, notably France and later England, during the Middle Ages. Its defining features included a large, sometimes forti ...
had broken down and land began to become concentrated in the hands of fewer landlords with increasingly large estates. Instead of a serf-based system of labor, workers were increasingly employed as part of a broader and expanding money-based economy. The system put pressure on both landlords and tenants to increase the productivity of agriculture to make profit; the weakened coercive power of the
aristocracy Aristocracy (, ) is a form of government that places strength in the hands of a small, privileged ruling class, the aristocrats. The term derives from the el, αριστοκρατία (), meaning 'rule of the best'. At the time of the word's ...
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. 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 seafaring ...
, was associated with the geographic exploration of foreign lands by merchant traders, especially from England and the Low Countries. 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 personif ...
(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 merchants, backed by state controls, subsidies and
monopolies A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
, made most of their profits by buying and selling goods. In the words of Francis Bacon, 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 co ...
, after massive contributions from the Mughal Bengal,
Om Prakash Om Prakash (born Om Prakash Chibber 19 December 1919 – 21 February 1998) was an Indian film actor. He was born in Jammu as Om Prakash Chibber and went on to become a well-known character actor of Bollywood. His most well-known movies are Na ...
,
Empire, Mughal
, ''History of World Trade Since 1450'', edited by John J. McCusker, vol. 1, Macmillan Reference USA, 2006, pp. 237–240, ''World History in Context''. Retrieved 3 August 2017
inaugurated an expansive era of commerce and trade. These companies were characterized by their colonial 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 o ...
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.


Industrial Revolution

In the mid-18th century a group of economic theorists, led by David Hume (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,
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 pers ...
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 ...
s, guilds and journeymen. Also during this period, the surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture. Industrial capitalism marked the development of the
factory system The factory system is a method of manufacturing using machinery and division of labor. Because of the high capital cost of machinery and factory buildings, factories are typically privately owned by wealthy individuals or corporations who emplo ...
of manufacturing, characterized by a complex division of labor between and within work process and the routine of work tasks; and eventually established the domination of the capitalist mode of production. Industrial Britain eventually abandoned the protectionist policy formerly prescribed by mercantilism. In the 19th century, Richard Cobden (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 Law ...
(1811–1889), who based their beliefs on the Manchester School, initiated a movement to lower tariffs. In the 1840s Britain adopted a less protectionist policy, with the 1846 repeal of the Corn Laws and the 1849 repeal of the Navigation Acts. Britain reduced tariffs and quotas, 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 eco ...
.


Modernity

Broader processes of globalization 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 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 econom ...
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 a ...
, while rapid population growth created sustained demand for commodities. The imperialism of the 18th-century decisively shaped globalization in this period. After the First and Second Opium Wars (1839–1860) and the completion of the British conquest of India, vast populations of Asia became ready consumers of European exports. Also in this period, Europeans colonized areas of sub-Saharan Africa and the Pacific islands. The conquest of new parts of the globe, notably sub-Saharan Africa, by Europeans yielded valuable natural resources such as rubber,
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, ...
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 dead ...
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. The United Kingdom first formally adopted this standard in 1821. Soon to follow were Canada in 1853, Newfoundland in 1865, the United States and Germany ('' de jure'') in 1873. New technologies, such as the
telegraph Telegraphy is the long-distance transmission of messages where the sender uses symbolic codes, known to the recipient, rather than a physical exchange of an object bearing the message. Thus flag semaphore is a method of telegraphy, whereas p ...
, the transatlantic cable, the
radiotelephone 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 (mess ...
, the steamship and railways 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 and the
IMF The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glob ...
), 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 thinking. It was the seminal work of the 'revisionist' school of Labour politics. The book defined Labour's ...
'' and by John Kenneth Galbraith 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 s ...
'', 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 actions ...
. Monetarism, a modification of Keynesianism that is more compatible with ''laissez-faire'' analyses, gained increasing prominence in the capitalist world, especially under the years in office of Ronald Reagan in the United States (1981–1989) and of Margaret Thatcher in the United Kingdom (1979–1990). Public and political interest began shifting away from the so-called
collectivist Collectivism may refer to: * Bureaucratic collectivism, a theory of class society whichto describe the Soviet Union under Joseph Stalin * Collectivist anarchism, a socialist doctrine in which the workers own and manage the production * Collectiv ...
concerns of Keynes's managed capitalism to a focus on individual
choice A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a give ...
, called "remarketized capitalism". The end of the Cold War and the dissolution of the Soviet Union allowed for capitalism to become a truly global system in a way not seen since before World War I. 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. 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 and capitalism is a contentious area in theory and in popular political movements. The extension of adult-male suffrage in 19th-century Britain occurred along with the development of industrial capitalism and representative democracy became widespread at the same time as capitalism, leading capitalists to posit a causal or mutual relationship between them. However, according to some authors in the 20th-century, capitalism also accompanied a variety of political formations quite distinct from liberal democracies, including fascist regimes,
absolute monarchies Absolute monarchy (or Absolutism as a doctrine) is a form of monarchy in which the monarch rules in their own right or power. In an absolute monarchy, the king or queen is by no means limited and has absolute power, though a limited constitut ...
and single-party states.
Democratic peace theory The democratic peace theory posits that democracies are hesitant to engage in armed conflict with other identified democracies. Among proponents of the democratic peace theory, several factors are held as motivating peace between democratic s ...
asserts that democracies seldom fight other democracies, but critics of that theory suggest that this may be because of political similarity or stability rather than because they are "democratic" or "capitalist". Moderate critics argue that though economic growth under capitalism has led to democracy in the past, it may not do so in the future as
authoritarian 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 voti ...
régimes have been able to manage economic growth using some of capitalism's competitive principles without making concessions to greater political freedom. Political scientists
Torben Iversen Torben Iversen is a Danish political economist, currently Harold Hitchings Burbank Professor of Political Economy at Harvard University Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1 ...
and David Soskice 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 ar ...
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 l ...
'' (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 as present in capitalism is a requisite of political freedom. He argued that the market mechanism is the only way of deciding what to produce and how to distribute the items without using coercion. Milton Friedman and Ronald Reagan also promoted this view. Friedman claimed that centralized economic operations are always accompanied by political repression. In his view, transactions in a market economy are voluntary and that the wide diversity that voluntary activity permits is a fundamental threat to repressive political leaders and greatly diminishes their power to coerce. Some of Friedman's views were shared by John Maynard Keynes, who believed that capitalism was vital for freedom to survive and thrive. Freedom House, an American think-tank that conducts international research on, and advocates for, democracy, political freedom and human rights, has argued that "there is a high and statistically significant correlation between the level of political freedom Freedom in the World, as measured by Freedom House and economic freedom Index of Economic Freedom, as measured by the Wall Street Journal/Heritage Foundation survey". In ''Capital in the Twenty-First Century'' (2013), Thomas Piketty of the Paris School of Economics asserted that inequality is the inevitable consequence of economic growth in a capitalist economy and the resulting Wealth concentration, concentration of wealth can destabilize democratic societies and undermine the ideals of social justice upon which they are built. States with capitalistic economic systems have thrived under political regimes deemed to be authoritarian or oppressive. Singapore has a successful open market economy as a result of its competitive, business-friendly climate and robust rule of law. Nonetheless, it often comes under fire for its style of government which, though democratic and consistently one of the least corrupt, operates largely under a one-party rule. Furthermore, it does not vigorously defend freedom of expression as evidenced by its government-regulated press, and its penchant for upholding laws protecting ethnic and religious harmony, judicial dignity and personal reputation. The private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception, despite having an authoritarian government. Augusto Pinochet's Military dictatorship of Chile (1973–1990), rule in Chile led to economic growth and high levels of inequality by using authoritarian means to create a safe environment for investment and capitalism. Similarly, Suharto's authoritarian reign and Indonesian mass killings of 1965–66, extirpation of the Communist Party of Indonesia allowed for the expansion of capitalism in Indonesia. The term "capitalism" in its modern sense is often attributed to Karl Marx. In his ''Das Kapital'', Marx analyzed the " capitalist mode of production" using a method of understanding today known as Marxism. However, Marx himself rarely used the term "capitalism" while it was used twice in the more political interpretations of his work, primarily authored by his collaborator Friedrich Engels. In the 20th century, defenders of the capitalist system often replaced the term "capitalism" with phrases such as free enterprise and private enterprise and replaced "capitalist" with Rentier capitalism, rentier and investor in reaction to the negative connotations associated with capitalism.


Characteristics

In general, capitalism as an economic system and mode of production can be summarized by the following: * Capital accumulation: production for profit and accumulation as the implicit purpose of all or most of production, constriction or elimination of production formerly carried out on a common social or private household basis. * Production (economics), Commodity production: production for exchange on a market; to maximize exchange-value instead of use-value. * Private ownership of the means of production: * High levels of wage labour, wage labor. * The investment of money to make a profit. * The use of the price mechanism to allocate resources between competing uses. * Economically efficient use of the factors of production and raw materials due to maximization of value added in the production process. * Freedom of capitalists to act in their self-interest in managing their business and investments.


Market

In
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ...
and ''laissez-faire'' forms of capitalism, markets are used most extensively with minimal or no regulation over the pricing mechanism. In mixed economies, which are almost universal today, markets continue to play a dominant role, but they are regulated to some extent by the state in order to correct market failures, promote social welfare, conserve natural resources, fund military, defense and public safety or other rationale. In State capitalism, state capitalist systems, markets are relied upon the least, with the state relying heavily on state-owned enterprises or indirect economic planning to accumulate capital. Competition arises when more than one producer is trying to sell the same or similar products to the same buyers. Adherents of the capitalist theory believe that competition leads to innovation and more affordable prices. Monopoly, Monopolies or cartels can develop, especially if there is no competition. A monopoly occurs when a firm has exclusivity over a market. Hence, the firm can engage in rent seeking behaviors such as limiting output and raising prices because it has no fear of competition. A cartel is a group of firms that act together in a monopolistic manner to control output and prices. Governments have implemented legislation for the purpose of preventing the creation of monopolies and cartels. In 1890, the Sherman Antitrust Act of 1890, Sherman Antitrust Act became the first legislation passed by the United States Congress to limit monopolies.


Wage labor

Wage labor, usually referred to as paid work, paid employment, or paid labor, refers to the socioeconomics, socioeconomic relationship between a workforce, worker and an employment, employer in which the worker sells their labor power under a formal or informal employment contract.: "All labor contracts were/are designed legally to bind a worker in one way or another to fulfill the labor obligations the worker has undertaken. That is one of the principal purposes of labor contracts." These transactions usually occur in a labour economics, labor market where wages or salary, salaries are market economy, market-determined. In exchange for the money paid as wages (usual for short-term work-contracts) or salaries (in permanent employment contracts), the work product generally becomes the work for hire, undifferentiated property of the employer. A wage laborer is a person whose primary means of income is from the selling of their labor in this way.


Profit motive

The profit motive, in the theory of capitalism, is the desire to earn income in the form of profit. Stated differently, the reason for a business's existence is to turn a profit. The profit motive functions according to rational choice theory, or the theory that individuals tend to pursue what is in their own best interests. Accordingly, businesses seek to benefit themselves and/or their shareholders by maximizing profit. In capitalist theoretics, the profit motive is said to ensure that resources are being allocated efficiently. For instance, Austrian economist Henry Hazlitt explains: "If there is no profit in making an article, it is a sign that the labor and capital devoted to its production are misdirected: the value of the resources that must be used up in making the article is greater than the value of the article itself".


Private property

The relationship between the State (polity), state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. Hernando de Soto (economist), Hernando de Soto is a contemporary Peruvian economist who has argued that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded. According to de Soto, this is the process by which physical assets are transformed into capital, which in turn may be used in many more ways and much more efficiently in the market economy. A number of Marxian economists have argued that the Enclosure Acts in England and similar legislation elsewhere were an integral part of capitalist primitive accumulation and that specific legal frameworks of private land ownership have been integral to the development of capitalism. Private property rights are not absolute, as in many countries the state has the power to seize private property, typically for public use, under the powers of eminent domain.


Market competition

In capitalist economics, market competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share and sales volume by varying the elements of the marketing mix: price, product, distribution and promotion. Merriam-Webster defines competition in business as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms". It was described by
Adam Smith 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'' (1776) and later economists as allocating productive resources to their most highly valued uses and encouraging x-efficiency, efficiency. Smith and other classical economists before Antoine Augustin Cournot, Antoine Augustine Cournot were referring to price and non-price rivalry among producers to sell their goods on best terms by bidding of buyers, not necessarily to a large number of sellers nor to a market in final Economic equilibrium, equilibrium. Competition is widespread throughout the market process. It is a condition where "buyers tend to compete with other buyers, and sellers tend to compete with other sellers". In offering goods for exchange, buyers competitively bid to purchase specific quantities of specific goods which are available, or might be available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering goods on the market, competing for the attention and exchange resources of buyers. Competition results from scarcity, as it is not possible to satisfy all conceivable human wants, and occurs as people try to meet the criteria being used to determine allocation. In the works of Adam Smith, the idea of capitalism is made possible through competition which creates growth. Although capitalism has not entered mainstream economics at the time of Smith, it is vital to the construction of his ideal society. One of the foundational blocks of capitalism is competition. Smith believed that a prosperous society is one where "everyone should be free to enter and leave the market and change trades as often as he pleases." He believed that the freedom to act in one's self-interest is essential for the success of a capitalist society. The fear arises that if all participants focus on their own goals, society's well-being will be water under the bridge. Smith maintains that despite the concerns of intellectuals, "global trends will hardly be altered if they refrain from pursuing their personal ends." He insisted that the actions of a few participants cannot alter the course of society. Instead, Smith maintained that they should focus on personal progress instead and that this will result in overall growth to the whole. Competition between participants, "who are all endeavoring to justle one another out of employment, obliges every man to endeavor to execute his work" through competition towards growth.


Economic growth

Economic growth 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 society, societies. Private money-making in various forms (renting, banking, merchant trade, production for profit and so on) preceded the development of the capitalist mode of production as such. The capitalist mode of production proper based on wage-labor and private ownership of the means of production and on industrial technology began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world. The term capitalist mode of production is defined by Private property, private ownership of the
means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
, extraction of surplus value by the owning class for the purpose of
capital accumulation 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 ...
, Wage labour, wage-based labor and, at least as far as Commodity, commodities are concerned, being Market economy, market-based. Capitalism in the form of money-making activity has existed in the shape of merchants and money-lenders who acted as intermediaries between consumers and producers engaging in simple commodity production (hence the reference to "merchant capitalism") since the beginnings of civilisation. What is specific about the "capitalist mode of production" is that most of the inputs and outputs of production are supplied through the market (i.e. they are commodities) and essentially all production is in this mode. By contrast, in flourishing feudalism most or all of the factors of production, including labor, are owned by the feudal ruling class outright and the products may also be consumed without a market of any kind, it is production for use within the feudal social unit and for limited trade. This has the important consequence that, under capitalism, the whole organisation of the production process is reshaped and re-organised to conform with economic bounded rationality, rationality as bounded by capitalism, which is expressed in price relationships between inputs and outputs (wages, non-labor factor costs, sales and profits) rather than the larger rational context faced by society overall—that is, the whole process is organised and re-shaped in order to conform to "commercial logic". Essentially, capital accumulation comes to define economic rationality in capitalist production. A society, region or nation is capitalist if the predominant source of incomes and products being distributed is capitalist activity, but even so this does not yet mean necessarily that the capitalist mode of production is dominant in that society.


Role of government

Government agencies regulate the standards of service in many industries, such as airlines and broadcasting, as well as financing a wide range of programs. In addition, the government regulates the flow of capital and uses financial tools such as the interest rate to control such factors as inflation and unemployment.


Supply and demand

In capitalist economic structures, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that in a perfect competition, perfectly competitive market, the unit price for a particular Good (economics), good will vary until it settles at a point where the quantity demanded by consumers (at the current price) will equal the quantity supplied by producers (at the current price), resulting in an economic equilibrium for price and Output (economics), quantity. The "basic laws" of Supply (economics), supply and demand, as described by David Besanko and Ronald Braeutigam, are the following four: # If demand increases (demand curve shifts to the right) and supply remains unchanged, then a shortage occurs, leading to a higher equilibrium price. # If demand decreases (demand curve shifts to the left) and supply remains unchanged, then a surplus occurs, leading to a lower equilibrium price. # If demand remains unchanged and supply increases (supply curve shifts to the right), then a surplus occurs, leading to a lower equilibrium price. # If demand remains unchanged and supply decreases (supply curve shifts to the left), then a shortage occurs, leading to a higher equilibrium price.


Supply schedule

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.


Demand schedule

A demand schedule, depicted graphically as the demand curve, represents the amount of some Good (economics), goods that buyers are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, tastes and preferences, the price of substitute goods and the price of complementary goods, remain the same. According to the law of demand, the demand curve is almost always represented as downward-sloping, meaning that as price decreases, consumers will buy more of the good.Note that unlike most Graph of a function, graphs, supply & demand curves are plotted with the independent variable (price) on the vertical axis and the dependent variable (quantity supplied or demanded) on the horizontal axis. Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves.


Equilibrium

In the context of supply and demand, economic equilibrium refers to a state where economic forces such as supply and demand are balanced and in the absence of external influences the (:wikt:equilibrium, equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium, in this case, refers to a condition where a market price is established through competition such that the amount of goods or services sought by Law of supply and demand, buyers is equal to the amount of goods or services produced by Law of supply and demand, sellers. This price is often called the competitive price or market clearing price, and will tend not to change unless demand or supply changes. The quantity is called "competitive quantity" or market clearing quantity.


Partial equilibrium

Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium. Jain proposes (attributed to George Stigler): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis".


History

According to Hamid S. Hosseini, the "power of supply and demand" was discussed to some extent by several early Muslim scholars, such as fourteenth-century Mamluk scholar Ibn Taymiyyah, who wrote: "If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down". (citing Hamid S. Hosseini, 1995. "Understanding the Market Mechanism Before Adam Smith: Economic Thought in Medieval Islam," ''History of Political Economy'', Vol. 27, No. 3, 539–61). John Locke's 1691 work ''Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money'' includes an early and clear description of supply and demand and their relationship. In this description, demand is Economic rent, rent: "The price of any commodity rises or falls by the proportion of the number of buyer and sellers" and "that which regulates the price... [of goods] is nothing else but their quantity in proportion to their rent".
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a m ...
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 tha ...
'' "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 enforc ...
, community capitalism, humanistic capitalism, neo-capitalism, state monopoly capitalism, and technocapitalism.


Advanced

Advanced capitalism is the situation that pertains to a society in which the capitalist model has been integrated and developed deeply and extensively for a prolonged period. Various writers identify Antonio Gramsci as an influential early theorist of advanced capitalism, even if he did not use the term himself. In his writings, Gramsci sought to explain how capitalism had adapted to avoid the revolutionary overthrow that had seemed inevitable in the 19th century. At the heart of his explanation was the decline of raw coercion as a tool of class power, replaced by use of civil society institutions to manipulate public ideology in the capitalists' favour. Jürgen Habermas has been a major contributor to the analysis of advanced-capitalistic societies. Habermas observed four general features that characterise advanced capitalism: # Concentration of industrial activity in a few large firms. # Constant reliance on the state to stabilise the economic system. # A formally democratic government that legitimises the activities of the state and dissipates opposition to the system. # The use of nominal wage increases to pacify the most restless segments of the work force.


Corporate

Corporate capitalism is a free or mixed-market capitalist economy characterized by the dominance of hierarchical, bureaucratic corporations.


Finance

Finance capitalism is the subordination of processes of Production (economics), production to the accumulation of money profits in a financial system. In their critique of capitalism, Marxism and Leninism both emphasise the role of Financial capital, finance capital as the determining and ruling-class interest in capitalist society, particularly in the Crisis of capitalism, latter stages. Rudolf Hilferding is credited with first bringing the term finance capitalism into prominence through ''Finance Capital'', his 1910 study of the links between German trusts, banks and monopolies—a study subsumed by Vladimir Lenin into ''Imperialism, the Highest Stage of Capitalism'' (1917), his analysis of the imperialist relations of the great world powers. Lenin concluded that the banks at that time operated as "the chief nerve centres of the whole capitalist system of national economy". For the Comintern (founded in 1919), the phrase "dictatorship of finance capitalism" became a regular one. Fernand Braudel would later point to two earlier periods when finance capitalism had emerged in human history—with the Genoese in the 16th century and with the Dutch in the 17th and 18th centuries—although at those points it developed from commercial capitalism. Giovanni Arrighi extended Braudel's analysis to suggest that a predominance of finance capitalism is a recurring, long-term phenomenon, whenever a previous phase of commercial/industrial capitalist expansion reaches a plateau.


Free-market

A capitalist free-market economy is an economic system where prices for goods and services are set entirely by the forces of supply and demand and are expected, by its adherents, to reach their point of Economic equilibrium, equilibrium without intervention by government policy. It typically entails support for highly Competition (economics), competitive markets and
private ownership 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 co ...
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. 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 argued that state-owned enterprises would characterize the final stage of capitalism, consisting of ownership and management of large-scale production and communication by the Capitalist state, bourgeois state. In his writings, Vladimir Lenin characterized the economy of Soviet Russia as state capitalist, believing state capitalism to be an early step toward the development of socialism. Some economists and left-wing academics including Richard D. Wolff and Noam Chomsky, as well as many Marxist philosophers and revolutionaries such as Raya Dunayevskaya and C.L.R. James, argue that the economies of the former Soviet Union and Eastern Bloc represented a form of state capitalism because their internal organization within enterprises and the system of wage labor remained intact. The term is not used by Austrian School economists to describe state ownership of the means of production. The economist Ludwig von Mises argued that the designation of state capitalism was a new label for the old labels of state socialism and planned economy and differed only in non-essentials from these earlier designations. The debate between proponents of private versus state capitalism is centered around questions of managerial efficacy, productive efficiency and fair distribution of wealth.


Welfare

Welfare capitalism is capitalism that includes social welfare policies. Today, welfare capitalism is most often associated with the models of capitalism found in Central Mainland and Northern Europe such as the Nordic model, social market economy and Rhine capitalism. In some cases, welfare capitalism exists within a mixed economy, but welfare states can and do exist independently of policies common to mixed economies such as state interventionism and extensive regulation. A mixed economy is a largely market-based capitalist economy consisting of both private and public ownership of the means of production and economic interventionism through macroeconomic policies intended to correct market failures, reduce unemployment and keep inflation low. The degree of intervention in markets varies among different countries. Some mixed economies such as France under dirigisme also featured a degree of Indicative planning, indirect economic planning over a largely capitalist-based economy. Most modern capitalist economies are defined as mixed economies to some degree.


Eco-capitalism

Eco-capitalism, also known as "environmental capitalism" or (sometimes) "green capitalism", is the view that capital (economics), capital exists in nature as "natural capital" (ecosystems that have ecological yield) on which all wealth depends. Therefore, governments should use Market (economics), market-based policy instruments, policy-instruments (such as a carbon tax) to resolve environmental problems. The term "Blue Greens" is often applied to those who espouse eco-capitalism. Eco-capitalism can be thought of as the right-wing equivalent to Eco-socialism, Red Greens.


Sustainable capitalism

Sustainable capitalism is a conceptual form of capitalism based upon Sustainability, sustainable practices that seek to preserve humanity and the planet, while reducing Externality, externalities and bearing a resemblance of capitalist economic policy. A capitalistic economy must expand to survive and find new markets to support this expansion. Capitalist systems are often destructive to the environment as well as certain individuals without access to proper representation. However, sustainability provides quite the opposite; it implies not only a continuation, but a resource depletion, replenishing of resources. Sustainability is often thought of to be related to environmentalism, and sustainable capitalism applies sustainable principles to economic governance and social aspects of capitalism as well. The importance of sustainable capitalism has been more recently recognized, but the concept is not new. Changes to the current economic model would have heavy social environmental and economic implications and require the efforts of individuals, as well as compliance of local, state and federal governments. Controversy surrounds the concept as it requires an increase in sustainable practices and a marked decrease in current consumptive behaviors. This is a concept of capitalism described in Al Gore and David Blood’s manifesto for the Generation Investment Management to describe a long-term political, economic and social structure which would mitigate current threats to the planet and society. According to their manifesto, sustainable capitalism would integrate the environmental, social and governance (Environmental, social and corporate governance, ESG) aspects into risk assessment in attempt to limit externalities. Most of the ideas they list are related to economic changes, and social aspects, but strikingly few are explicitly related to any environmental policy change.


Capital accumulation

The accumulation of capital is the process of "making money", or growing an initial sum of money through investment in production. Capitalism is based on the accumulation of capital, whereby financial capital is invested in order to make a profit and then reinvested into further production in a continuous process of accumulation. In Marxian economic theory, this dynamic is called the law of value. Capital accumulation forms the basis of capitalism, where economic activity is structured around the accumulation of
capital 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 fo ...
, 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 to an employer. These transactions usually occur in a labour market, labor market where wages are market determined. Individuals who possess and supply financial capital to productive ventures often become owners, either jointly (as shareholders) or individually. In Marxist economics, these owners of the means of production and suppliers of capital are generally called capitalists. The description of the role of the capitalist has shifted, first referring to a useless intermediary between producers, then to an employer of producers, and finally to the owners of the means of production. Labor (economics), Labor includes all physical and mental human resources, including entrepreneurial capacity and management skills, which are required to produce products and services. Production (economics), Production is the act of making goods or services by applying labor power.


Criticism

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 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

; Notes ; Bibliography * * * * * * * * * * * * * Krahn, Harvey J., and Graham S. Lowe (1993). ''Work, Industry, and Canadian Society''. Second ed. Scarborough, Ont.: Nelson Canada. xii, 430 p. * * * * * * * * * * * * *


Further reading

* Gar Alperovitz, Alperovitz, Gar (2011). ''America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy, 2nd Edition.'' Democracy Collaborative Press. . * * 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. . * * * * 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. * * Farl, Erich. "The Genealogy of State Capitalism". In: ''International'' London, vol. 2, no. 1, 1973. * * 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


* * Hyman, Louis and Edward E. Baptist (2014). ''American Capitalism: A Reader.'' Simon & Schuster. . * * * * 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.'' * * 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. * * * Panitch, Leo, and Sam Gindin (2012). ''The Making of Global Capitalism: the Political Economy of American Empire''. London, Verso. . * * * Karl Polanyi, Polanyi, Karl (2001). ''The Great Transformation (book), The Great Transformation: The Political and Economic Origins of Our Time.'' Beacon Press; 2nd ed. * * 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. * * 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.) * * *


External links

*
Capitalism
at ''Encyclopædia Britannica'' Online.
Selected Titles on Capitalism and Its Discontents
Harvard University Press. {{authority control Capitalism, Accounting Banking Business Economic liberalism Production economics Profit Social philosophy Western culture Finance