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Capitalism is an
economic system An economic system, or economic order, is a system A system is a group of interacting Interaction is a kind of action that occurs as two or more objects have an effect upon one another. The idea of a two-way effect is essential in the co ...
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, which is owned by a state entity, and from Collective ownershi ...
of the
means of production The means of production is a concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
and their operation for
profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
. Central characteristics of capitalism include
capital accumulation Capital accumulation (also termed the accumulation of capital) is the dynamic that motivates the , involving the of money or any with the of increasing the initial monetary of said asset as a whether in the form of , , , or . The aim of cap ...
,
competitive market In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...

competitive market
s, a
price system In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods an ...
, private property and the recognition of
property rights The right to property, or the right to own property (cf. ownership Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until th ...
,
voluntary exchangeVoluntary exchange is the act of buyer Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process. Procurement generally inv ...
and
wage labor A wage is the distribution from an employer Employment is a relationship between two parties, usually based on contract A contract is a legally binding document between at least two parties that defines and governs the rights and duties ...
. In a
capitalist market economy A market economy is an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of goods and services wit ...
, decision-making and investments are determined by every owner of wealth, property or production ability in
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
and
financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Ma ...
s whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
Economist An economist is a professional and practitioner in the social science Social science is the branch The branches and leaves of a tree. A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , pl ...

Economist
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 Production (economics), production and trade and their relations with law, Custom (law), custom and government; and with the Distribution (economics), distribution of national income and Economic wealth, wealth. ...
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 An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), d ...
'' or
free-market capitalism A market economy is an economic system in which the decisions regarding investment, Production (economics), production and Distribution (economics), distribution are guided by the price signals created by the forces of supply and demand. The maj ...
,
state capitalism State capitalism is an in which the undertakes and (i.e. ) economic activity and where the are as (including the processes of , and ). The definition can also include the state dominance of government agencies (agencies organized along ...
and
welfare capitalism#REDIRECT Welfare capitalism Welfare capitalism is capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism ...
. Different
forms of capitalism Form is the shape, visual appearance, or :wikt:configuration, configuration of an object. In a wider sense, the form is the way something happens. Form also refers to: *Form (document), a document (printed or electronic) with spaces in which to w ...
feature varying degrees of
free market In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pl ...
s,
public ownership State ownership, also called government ownership and public ownership, is the ownership of an industry Industry may refer to: Economics * Industry (economics) In macroeconomics, an industry is a branch of an economy that produces a clos ...
, obstacles to free competition and state-sanctioned
social policies Social policy is policy A policy is a deliberate system of principles to guide decisions and achieve rational outcomes. A policy is a statement of intent, and is implemented as a procedure or protocol. Policies are generally adopted by a gov ...
. The degree of
competition Competition is a rivalry A rivalry is the state of two people or groups engaging in a lasting competitive relationship. Rivalry is the "against each other" spirit between two competing sides. The relationship itself may also be called "a riv ...
in
markets Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Market (1965 film), ''Market'' (1965 ...
and the role of intervention and
regulation Regulation is the management of complex systems A complex system is a system composed of many components which may interaction, interact with each other. Examples of complex systems are Earth's global climate, organisms, the human brain, infras ...
as well as the scope of state ownership vary across different models of capitalism.''Macmillan Dictionary of Modern Economics'', 3rd Ed., 1986, p. 54. 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 that combine elements of free markets with state intervention and in some cases
economic planning Economic planning is a resource allocation In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Co ...
.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 An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of goods and services wit ...
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 ...

forms of government
and in many different times, places and cultures. Modern capitalist societies—marked by a universalization of
money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or verifiable record that is generally a ...

money
-based
social relations In social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. The term was formerly used to refer t ...
, a consistently large and system-wide class of workers who must work for wages (the
proletariat The proletariat (; ) is the social class of wage labor, wage-earners, those members of a society whose only possession of significant economic value is their labour power (their capacity to work). A member of such a class is a proletarian. Marx ...

proletariat
) and a
capitalist class Bourgeoisie (; ) is a Polysemy, polysemous French term that can mean: * a sociologically defined social class, especially in contemporary times, referring to people with a certain Cultural capital, cultural and financial capital belonging to ...
which owns the means of production—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 Continental Europe or mainland Europe is the contiguous continent A continent is any of several large landmasse ...
. 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, refers to various regions, nations and state (polity), states, depending on the context, most often consisting of the majority of Europe, Northern America, and Australasia.
and continue to spread. Constant
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 economics, economy over time. Statisticians conventionally measure such growth as the percent rate of i ...

economic growth
is a characteristic tendency of capitalist economies. Critics of capitalism argue that it concentrates power in the hands of a minority capitalist class that exists through the exploitation of the majority working class and their labor; prioritizes profit over social good, natural resources and the environment; is an engine of inequality, corruption and economic instabilities; and that many are not able to access its purported benefits and freedoms, such as freely investing. Supporters argue that it provides better products and innovation through competition, promotes pluralism and decentralization of power, disperses wealth to people who are able to invest in useful enterprises based on market demands, allows for a flexible incentive system where efficiency and sustainability are priorities to protect capital, creates strong economic growth, and yields productivity and prosperity that greatly benefit society.


Etymology

The term "capitalist", meaning an owner of
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
, appears earlier than the term "capitalism" and dates to the mid-17th century. "Capitalism" is derived from ''capital'', which evolved from ''capitale'', a late
Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communication (from Latin ''communicare'', meaning "to share" or "to be in relation with") is "an appa ...

Latin
word based on ''caput'', meaning "head"—which is also the origin of " chattel" and "
cattle Cattle, taurine cattle, Eurasian cattle, or European cattle (''Bos taurus'' or ''Bos primigenius taurus'') are large domestication, domesticated Cloven hoof, cloven-hooved herbivores. They are a prominent modern member of the subfamily Bovinae ...

cattle
" in the sense of movable property (only much later to refer only to livestock). ''Capitale'' emerged in the 12th to 13th centuries to refer to funds, stock of merchandise, sum of money or money carrying interest.Braudel, Fernand. The Wheels of Commerce: Civilization and Capitalism 15th–18th Century, Harper and Row, 1979James 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, six 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'' (1817),
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, one of the most influential of the classical economists along with Thomas Malthus Thomas Robert Malthus (; 13/14 February 1766 – 23 December 1834) w ...

David Ricardo
referred to "the capitalist" many times. English poet
Samuel Taylor Coleridge Samuel Taylor Coleridge (; 21 October 177225 July 1834) was an , , and who, with his friend , was a founder of the in England and a member of the . He also shared volumes and collaborated with , , and . He wrote the poems ' and ', as well ...

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 Paris () is the Capital city, capital and List of communes in France with over 20,000 inhabitants, most populous city of France, with an estimated popu ...

Pierre-Joseph Proudhon
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 Anarchism in France, French anarchist Pierre-Joseph Proudhon in his 1840 book ''What is Property? Or, an Inquiry into the Principle of Right and of Government''. ...
'' (1840), to refer to the owners of capital.
Benjamin Disraeli Benjamin Disraeli, 1st Earl of Beaconsfield, (21 December 1804 – 19 April 1881), was twice Prime Minister of the United Kingdom The prime minister of the United Kingdom is the head of government The head of government is e ...

Benjamin Disraeli
used the term in his 1845 work '' Sybil''. The initial use of the term "capitalism" in its modern sense is attributed to
Louis Blanc Louis Jean Joseph Charles Blanc (; ; 29 October 1811 – 6 December 1882) was a French politician and historian. A socialist Socialism is a political Politics (from , ) is the set of activities that are associated with Decision-making, m ...

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 Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, M ...

Karl Marx
and
Friedrich Engels Friedrich Engels ( ,"Engels"
''Random House Webster's Unabridged Dictionary''.
referred to the "capitalistic system" and to the "capitalist mode of production" in ''
Capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
'' (1867). The use of the word "capitalism" in reference to an economic system appears twice in Volume I of ''Capital'', p. 124 (German Edition) and in ''Theories of Surplus Value'', volume II, p. 493 (German Edition). Marx did not extensively use the form ''capitalism'', but instead ''capitalist'' and ''capitalist mode of production'', which appear more than 2,600 times in the trilogy ''Capital'' (''Das Kapital''). In the
English language English is a West Germanic language of the Indo-European language family The Indo-European languages are a language family A language is a structured system of communication used by humans, including speech ( spoken language), g ...

English language
, the term "capitalism" first appears, according to the ''
Oxford English Dictionary The ''Oxford English Dictionary'' (''OED'') is the principal historical dictionary A historical dictionary or dictionary on historical principles is a dictionary which deals not only with the latterday meanings of words but also the historica ...
'' (OED), in 1854, in the novel ''
The Newcomes ''The Newcomes: Memoirs of a Most Respectable Family'' is a novel A novel is a relatively long work of narrative A narrative, story or tale is any account of a series of related events or experiences, whether nonfictional ( memoir, biograp ...

The Newcomes
'' by novelist
William Makepeace Thackeray William Makepeace Thackeray (; 18 July 1811 – 24 December 1863) was a British , and . He is known for his works, particularly his 1848 novel ', a panoramic portrait of British society, and the 1844 novel ', which was by . Biography Thack ...

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, a
German American German Americans (german: Deutschamerikaner, ) are Americans who have full or partial Germans, German ancestry. With an estimated size of approximately 43 million in 2019, German Americans are the largest of the self-reported ancestry groups by ...
socialist Socialism is a political Politics (from , ) is the set of activities that are associated with making decisions In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the Cognition, cognitive pr ...
and
abolitionist Abolitionism, or the abolitionist movement, was 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 Period may refer to: Common uses * Era, a length or span of time * Full stop (or period), a punctuation mark Arts, entertainment, and media * Period (music), a concept in ...

Renaissance
, in city-states like
Florence Florence ( ; it, Firenze ) is a city in Central-Northern Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of Italian Peninsula, a peninsula delimited by the Al ...

Florence
.
Capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
has existed incipiently on a small scale for centuriesWarburton, David. ''Macroeconomics from the beginning: The General Theory, Ancient Markets, and the Rate of Interest''. Paris, Recherches et Publications, 2003. p. 49. in the form of merchant, renting and lending activities and occasionally as small-scale industry with some wage labour. Simple
commodity In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plan ...
exchange and consequently simple commodity production, which is the initial basis for the growth of capital from trade, have a very long history.
Arabs The Arabs (singular Arab ; singular ar, عَرَبِيٌّ, ISO 233 The international standard An international standard is a technical standard A technical standard is an established norm (social), norm or requirement for a repeatable technica ...
promulgated capitalist economic policies such as free trade and banking. Their use of Indo-Arabic numerals facilitated
bookkeeping Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variabl ...
. These innovations migrated to Europe through trade partners in cities such as Venice and Pisa. The Italian mathematician
Fibonacci Fibonacci (; also , ; – ), also known as Leonardo Bonacci, Leonardo of Pisa, or Leonardo Bigollo Pisano ('Leonardo the Traveller from Pisa'), was an Italian mathematician A mathematician is someone who uses an extensive knowledge of mathem ...

Fibonacci
traveled the Mediterranean talking to Arab traders and returned to popularize the use of Indo-Arabic numerals in Europe.Koehler, Benedikt. ''Early Islam and the Birth of Capitalism'', "In Baghdad, by the early tenth century a fully-fledged banking sector had come into being..." p. 2, (Lexington Books, 2014). Capital and commercial trade thus existed for much of history, but until recent centuries it did not lead to industrialization or dominate the production process of society. That required a set of conditions, including specific technologies of mass production, the ability to independently and privately own and trade in means of production, a class of workers willing to sell their
labor power Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or by Caesarean section. In 2015, there were about 13 ...
for a living, a
legal Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundari ...

legal
framework promoting commerce, a physical infrastructure allowing the circulation of goods on a large scale and security for private accumulation. Many of these conditions do not currently exist in many
Third World The term "Third World" arose during the Cold War to define countries that remained non-aligned with either NATO or the Warsaw Pact. The United States, Canada, Japan, South Korea, Western European nations and their allies represented the "First Wor ...

Third World
countries, although there is plenty of capital and labor. The obstacles for the development of capitalist markets are therefore less technical and more social, cultural and political.


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 seignorialism or the manorial system, was an organising principle of rural economies which vested legal and economic power in a lord of the manor. If the core of feudalism Feudalism, also known as the feudal ...
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 peasant A peasant is a pre-industrial farmhand, agricultural laborer or a farmer with limited land-ownership, especially one living in the Middle Ages under feudalism and tenant farmer, paying rent, tax, fee ...
-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 ( grc-gre, ἀριστοκρατία , from 'excellent', and , 'rule') is a form of government A government is the system or group of people governing an organized community, generally a state State may refer to: Ar ...
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 Labour economics seeks to understand the functioning and dynamics of the markets Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland ...
. Terms of rent for land were becoming subject to economic market forces rather than to the previous stagnant system of custom and feudal obligation. By the early 17th century, England was a centralized state in which much of the feudal order of
Medieval Europe In the history of Europe The history of Europe concerns itself with the discovery and collection, the study, organization and presentation and the interpretation of past events and affairs of the people of Europe since the beginning of ...
had been swept away. This centralization was strengthened by a good system of roads and by a disproportionately large capital city,
London London is the capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowerc ...

London
. The capital acted as a central market hub for the entire country, creating a very large internal market for goods, contrasting with the fragmented feudal holdings that prevailed in most parts of the
Continent A continent is any of several large landmass A landmass, or land mass, is a large region In geography Geography (from Greek: , ''geographia'', literally "earth description") is a field of science devoted to the study of th ...

Continent
.


Mercantilism

The economic doctrine prevailing from the 16th to the 18th centuries is commonly called
mercantilism Mercantilism is an economic policy The economic policy of government A government is the system or group of people governing an organized community, generally a state State may refer to: Arts, entertainment, and media Li ...

mercantilism
. This period, the
Age of Discovery The Age of Discovery, or the Age of Exploration (sometimes also, particularly regionally, Age of Contact or Contact Period), is an informal and loosely defined term for the early modern period The early modern period of modern history ...
, 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) and historically called the Netherlands ( nl, de Nederlanden), Flanders, or Belgica, refers to a coastal lowland region in Northwestern Europe ...
. 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 ; October 25, 1886 – April 23, 1964) was an Austro-Hungarian economic historian, economic anthropologist, economic sociology, economic sociologist, political economist, historical sociology, historic ...
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 The Tudor period occurred between 1485 and 1603 in and includes the during the of until 1603. The Tudor period coincides with the dynasty of the in England whose first monarch was ...
(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 mercantilism, mercantilists. Most notably, he is known for serving as the director of the East India Company. Due to h ...
'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 In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distributi ...

merchant
s, backed by state controls, subsidies and
monopolies A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none) is as described by Irving Fisher, a market with the "absence of competition", creating a situation whe ...

monopolies
, 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 for England and Wales, Attorney General and as Lord Chancellor of K ...

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 Intensive agriculture, also known as intensive farming (as opposed to extensive farming) and industrial agriculture, is a type of agriculture Agricult ...
, the
British East India Company The East India Company (EIC), also known as the Honourable East India Company (HEIC), East India Trading Company (EITC), the English East India Company or (after 1707) the British East India Company, and informally known as John Company, Com ...
and the
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate A corporation is an organization—u ...

Dutch East India Company
, after massive contributions from the
Mughal Bengal The Bengal Subah (also known as Mughal Bengal) was the largest subdivision of the Mughal Empire The Mughal Empire, Mogul or Moghul Empire, was an Early modern period, early modern empire in South Asia. Quote: "Although the first two Timu ...

Mughal Bengal
,
Om Prakash Om Prakash Bakshi (19 December 1919 – 21 February 1998) was an Indian character actor A character actor is a supporting actor who plays unusual, interesting, or eccentric characters.28 April 2013, The New York Acting SchoolTen Best Charac ...
,
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 auto ...

colonial
and expansionary powers given to them by nation-states. During this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the East India Companies and other colonies, seeking a
return on investment Return on investment (ROI) or return on costs (ROC) is a ratio between net income In business Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods an ...
.


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 999999 or triple nine most often refers to: * 999 (emergency telephone number) 250px, A sign on a beach ...

David Hume
(1711–1776) and
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
(1723–1790), challenged fundamental mercantilist doctrines – such as the belief that the world's wealth remained constant and that a state could only increase its wealth at the expense of another state. During the
Industrial Revolution The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe Continental Europe or mainland Europe is the contiguous continent A continent is any of several large landmasse ...
,
industrialists A business magnate is someone who has achieved great success and enormous wealth through the ownership of multiple lines of enterprise. The term characteristically refers to a wealthy entrepreneur or investor who controls, through personal enter ...

industrialists
replaced merchants as a dominant factor in the capitalist system and effected the decline of the traditional handicraft skills of
artisan Wood carver in Bali 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 fur ...

artisan
s, guilds and
journeymen A journeyman is a worker, skilled in a given building trade or craft A craft or trade is a pastime or an occupation that requires particular skills and knowledge of skilled work. In a historical sense, particularly the Middle Ages ...

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 (Slovakia Slovakia (; sk, Slovensko ), officially the Slovak Republic ( sk, Slovenská republika, links=no ), is a landlocked country in Central Europe. It is bordered by Poland to the north, Ukraine to the east, Hungary to the south, Au ...
of manufacturing, characterized by a complex
division of labor Division or divider may refer to: Mathematics *Division (mathematics) Division is one of the four basic operations of arithmetic, the ways that numbers are combined to make new numbers. The other operations are addition, subtraction, and multi ...
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 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. Proponents argue that protectionist policies sh ...
policy formerly prescribed by mercantilism. In the 19th century,
Richard Cobden Richard Cobden (3 June 1804 – 2 April 1865) was an English Radicals (UK), Radical and Liberal Party (UK), Liberal politician, manufacturing, manufacturer, and a campaigner for free trade and peace. He was associated with the Anti-Corn Law League ...

Richard Cobden
(1804–1865) and
John Bright John Bright (16 November 1811 – 27 March 1889) was a British Radicals (UK), Radical and Liberal Party (UK), Liberal statesman, one of the greatest orators of his generation and a promoter of free trade policies. A Quaker, Bright is most f ...

John Bright
(1811–1889), who based their beliefs on the Manchester School, initiated a movement to lower
tariffs A tariff is a tax imposed by a government of a country or of 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 International trade, forei ...
. In the 1840s Britain adopted a less protectionist policy, with the 1846 repeal of the
Corn Laws The Corn Laws were tariff A tariff is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or per ...
and the 1849 repeal of the
Navigation Acts The Navigation Acts, or more broadly the Acts of Trade and Navigation, was 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 la ...
. Britain reduced tariffs and
quotas Quota may refer to: Economics * Import quota An import quota is a type of trade restriction A trade restriction is an artificial restriction on the trade Trade involves the transfer of goods or services from one person or entity to an ...
, in line with David Ricardo's advocacy of
free trade Free trade is a trade policy A commercial policy (also referred to as a trade policy or international trade policy) is a government's policy governing international trade International trade is the exchange of capital, goods, and servic ...
.


Modernity

Capitalism was carried across the world by broader processes of
globalization Globalization, or globalisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which ha ...

globalization
and 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. Later 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 An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of go ...
being its dominant form in the industrialized Western world.
Industrialization Factories, refineries, mines, and agribusiness are all elements of industrialisation Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian societ ...
allowed cheap production of household items using
economies of scale In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis ...

economies of scale
while rapid
population growth Population growth is the increase in the number of people in a population Population typically refers the number of people in a single area whether it be a city or town, region, country, or the world. Governments typically quantify the size ...
created sustained demand for commodities. Globalization in this period was decisively shaped by 18th-century
imperialism Imperialism is a policy or ideology of extending rule over peoples and other countries, for extending political and economic access, power and control, often through employing hard power Hard power is the use of military and economics, economi ...

imperialism
. After the
First First or 1st is the ordinal form of the number one (#1). First or 1st may also refer to: *World record A world record is usually the best global and most important performance that is ever recorded and officially verified in a specific skill ...
and
Second Opium War The Second Opium War (), also known as the Second Anglo-Chinese War, the Second China War, the Arrow War, or the Anglo-French expedition to China, was a war War is an intense armed conflict between states, government A gov ...
s and the completion of the British conquest of India, vast populations of these regions became ready consumers of European exports. Also in this period, areas of sub-Saharan Africa and the Pacific islands were colonized. 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 polymer A polymer (; Greek ''poly- Poly, from the Greek :wikt:πολύς, πολύς meaning "many" or "much" ...

rubber
,
diamonds Diamond is a Allotropes of carbon, solid form of the element carbon with its atoms arranged in a crystal structure called diamond cubic. At Standard conditions for temperature and pressure, room temperature and pressure, another solid form of c ...

diamonds
and
coal Coal is a combustible , Germany ) , image_map = , map_caption = , map_width = 250px , capital = Berlin , coordinates = , largest_city = capital , languages_type = Official language , languages = German language, German , ...

coal
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 Gold certificates were used as paper currency in the United States">paper_currency.html" ;"title="Gold certificates were used as paper currency">Gold certificates were used as paper currency in the United States from 1882 to 1933. These certifi ...
. The
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
first formally adopted this standard in 1821. Soon to follow were
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...
in 1853,
Newfoundland Newfoundland and Labrador (, ) is the easternmost provinces and territories of Canada, province of Canada, in the country's Atlantic Canada, Atlantic region. It is composed of the island of Newfoundland (island), Newfoundland and the continental ...
in 1865, the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

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 is a method of telegraphy, whereas is not. Ancien ...

telegraph
, the transatlantic cable, the
radiotelephone A radiotelephone (or radiophone) is a radio communication Radio is the technology of signaling and communicating using radio wave Radio waves are a type of electromagnetic radiation with wavelengths in the electromagnetic spectrum ...
, the
steamship A steamship, often referred to as a steamer, is a type of steam-powered vessel Steam-powered vessels include steamboats and steamships. Smaller steamboats were developed first. They were replaced by larger steamships which were often ocean-going. ...

steamship
and
railway Rail transport (also known as train transport) is a means of transferring passengers and goods on wheeled vehicle A vehicle (from la, vehiculum) is a machine that transports people or cargo. Vehicles include wagons, bicycles, motor veh ...

railway
allowed goods and information to move around the world at an unprecedented degree. In the period following the global depression of the 1930s, the state played an increasingly prominent role in the capitalistic system throughout much of the world. The postwar boom ended in the late 1960s and early 1970s and the situation was worsened by the rise of
stagflation In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
.
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 In macroeconomics, the money ...
, a modification of Keynesianism that is more compatible with ''laissez-faire'', gained increasing prominence in the capitalist world, especially under the leadership of
Ronald Reagan Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician who served as the 40th president of the United States The president of the United States (POTUS) is the and of the . The president directs the of ...

Ronald Reagan
in the United States and
Margaret Thatcher Margaret Hilda Thatcher, Baroness Thatcher (; 13 October 19258 April 2013), was Prime Minister of the United Kingdom The prime minister of the United Kingdom is the head of government The head of government is either ...

Margaret Thatcher
in the United Kingdom in the 1980s. Public and political interest began shifting away from the so-called
collectivist Collectivism is a value that is characterized by emphasis on cohesiveness among individuals and prioritization of the group over the self. Individuals or groups that subscribe to a collectivist worldview tend to find common values and goals as pa ...
concerns of Keynes's managed capitalism to a focus on individual choice, called "remarketized capitalism".Fulcher, James. ''Capitalism''. 1st New York, Oxford University Press, 2004. According to Harvard academic
Shoshana Zuboff Shoshana Zuboff (born 1951) is an American author, Harvard professor, social psychologist, philosopher, and scholar. She is the author of the books ''In the Age of the Smart Machine: The Future of Work and Power'' and ''The Support Economy: Why ...
, a new genus of capitalism,
surveillance capitalism Surveillance capitalism is an economic system centred around the commodification of personal data with the core purpose of profit-making. The concept of surveillance capitalism, as described by Shoshana Zuboff, arose as advertising companies, ...
monetizes data acquired through
surveillance Surveillance is the monitoring of behavior, many activities, or information for the purpose of information gathering, influencing, managing Management (or managing) is the administration of an organization An organization, or org ...

surveillance
. She states it was first discovered and consolidated at
Google Google LLC is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational stat ...

Google
, emerged due to the "coupling of the vast powers of the
digital Digital usually refers to something using digits, particularly binary digits. Technology and computing Hardware *Digital electronics Digital electronics is a field of electronics Electronics comprises the physics, engineering, technology a ...
with the radical indifference and intrinsic narcissism of the
financial capitalism Finance capitalism or financial capitalism is the subordination of processes of production to the accumulation of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III ar ...
and its neoliberal vision that have dominated commerce for at least three decades, especially in the Anglo economies" and depends on the global architecture of computer mediation which produces a distributed and largely uncontested new expression of power she calls "Big Other". 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; and Capitalism 2.1 which entailed a combination of unregulated markets, globalization, and various national obligations by the state.


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 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 fascism, fascist regimes, Absolute monarchy, absolute monarchies and One-party state, single-party states. Democratic peace theory 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 regimes have been able to manage economic growth using some of capitalism's competitive principles without making concessions to greater political freedom. Political scientists Torben Iversen and David Soskice argue that democracy and capitalism are mutually supportive. Milton Friedman, one of the biggest supporters of the idea that capitalism promotes political freedom, argued that competitive capitalism allows economic and political power to be separate, ensuring that they do not clash with one another. Moderate critics have recently challenged this, stating that the current influence lobbying groups have had on policy in the United States is a contradiction, given the approval of Citizens United (organization), Citizens United. This has led people to question the idea that competitive capitalism promotes political freedom. The ruling on Citizens United allows corporations to spend undisclosed and unregulated amounts of money on political campaigns, shifting outcomes in favor of special interests and undermining true democracy. As explained in Robin Hahnel's writings, the centerpiece of the ideological defense of the free market system is the concept of economic freedom and that supporters equate economic democracy with economic freedom and claim that only the free market system can provide economic freedom. According to Hahnel, there are a few objections to the premise that capitalism offers freedom through economic freedom. These objections are guided by critical questions about who or what decides whose freedoms are more protected. Often, the question of inequality is brought up when discussing how well capitalism promotes democracy. An argument that could stand is that economic growth can lead to inequality given that capital can be acquired at different rates by different people. 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 it is penchant for upholding laws protecting ethnic and religious harmony, judicial dignity and personal reputation. The private (capitalist) sector in the People's Republic of China has grown exponentially and thrived since its inception, despite having an authoritarian government. Augusto Pinochet's Military dictatorship of Chile (1973–1990), rule in Chile led to economic growth and high levels of inequality by using authoritarian means to create a safe environment for investment and capitalism. Similarly, Suharto's authoritarian reign and Indonesian mass killings of 1965–66, extirpation of the Communist Party of Indonesia allowed for the expansion of capitalism in Indonesia. The term "capitalism" in its modern sense is often attributed to
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, M ...

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 Friedrich Engels ( ,"Engels"
''Random House Webster's Unabridged Dictionary''.
. 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 summarised 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. * 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 Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pl ...
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. Supply is the amount of a good or service that is available for purchase or sale. Demand is the measure of value for a good that people are willing to buy at a given time. Prices tend to rise when demand for an available resource increases or its supply diminishes and fall with demand or when supply increases. 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 is granted 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.


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". In other words, profits let companies know whether an item is worth producing. Theoretically, in free and competitive markets maximising profit ensures that resources are not wasted.


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.


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 ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
in ''The Wealth of Nations'' (1776) and later economists as allocating productive resources to their most highly valued uses and encouraging x-efficiency, efficiency. Smith and other classical economists before Antoine Augustin Cournot, Antoine Augustine Cournot were referring to price and non-price rivalry among producers to sell their goods on best terms by bidding of buyers, not necessarily to a large number of sellers nor to a market in final Economic equilibrium, equilibrium. Competition is widespread throughout the market process. It is a condition where "buyers tend to compete with other buyers, and sellers tend to compete with other sellers". In offering goods for exchange, buyers competitively bid to purchase specific quantities of specific goods which are available, or might be available if sellers were to choose to offer such goods. Similarly, sellers bid against other sellers in offering goods on the market, competing for the attention and exchange resources of buyers. Competition results from scarcity, as it is not possible to satisfy all conceivable human wants, and occurs as people try to meet the criteria being used to determine allocation.


Economic growth

Economic growth is a characteristic tendency of capitalist economies.


As a mode of production

The capitalist mode of production refers to the systems of organising production and distribution within capitalist society, societies. Private money-making in various forms (renting, banking, merchant trade, production for profit and so on) preceded the development of the capitalist mode of production as such. The capitalist mode of production proper based on wage-labour 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 Continental Europe or mainland Europe is the contiguous continent A continent is any of several large landmasse ...
, 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 concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
, extraction of surplus value by the owning class for the purpose of
capital accumulation Capital accumulation (also termed the accumulation of capital) is the dynamic that motivates the , involving the of money or any with the of increasing the initial monetary of said asset as a whether in the form of , , , or . The aim of cap ...
, Wage labour, wage-based labour 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 labour, 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-labour 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.


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.


Graphical representation

Although it is normal to regard the quantity demanded and the quantity supplied as function (mathematics), functions of the price of the goods, the standard graphical representation, usually attributed to Alfred Marshall, has price on the vertical axis and quantity on the horizontal axis, the opposite of the standard convention for the representation of a mathematical function. Since determinants of supply and demand other than the price of the goods in question are not explicitly represented in the supply-demand diagram, changes in the values of these variables are represented by moving the supply and demand curves (often described as "shifts" in the curves). By contrast, responses to changes in the price of the good are represented as movements along unchanged supply and demand curves.


Supply schedule

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition, supply is determined by marginal cost. That is, firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive. A hike in the cost of raw goods would decrease supply and shift costs up, while a discount would increase supply and shift costs down, hurting producers as producer surplus decreases. By its very nature, conceptualising a supply curve requires the firm to be a perfect competitor (i.e. to have no influence over the market price). This is true because each point on the supply curve is the answer to the question "If this firm is ''faced with'' this potential price, how much output will it be able to and willing to sell?". If a firm has market power, its decision of how much output to provide to the market influences the market price, therefore the firm is not "faced with" any price and the question becomes less relevant. Economists distinguish between the supply curve of an individual firm and the market supply curve. The market supply curve is obtained by summing the quantities supplied by all suppliers at each potential price, thus in the graph of the supply curve individual firms' supply curves are added horizontally to obtain the market supply curve. Economists also distinguish the short-run market supply curve from the long-run market supply curve. In this context, two things are assumed constant by definition of the short run: the availability of one or more fixed inputs (typically physical capital) and the number of firms in the industry. In the long-run, firms can adjust their holdings of physical capital, enabling them to better adjust their quantity supplied at any given price. Furthermore, in the long-run potential competitors can Market entry strategy, enter or exit the industry in response to market conditions. For both of these reasons, long-run market supply curves are generally flatter than their short-run counterparts. The determinants of supply are: # Production costs: how much a good costs to be produced. Production costs are the cost of the inputs; primarily labor, capital, energy and materials. They depend on the technology used in production and/or technological advances (productivity). # Firms' expectations about future prices. # Number of suppliers.


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. Consumers will be willing to buy a given quantity of a good at a given price, if the marginal utility of additional consumption is equal to the opportunity cost determined by the price—that is, the marginal utility of alternative consumption choices. The demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time. While the aforementioned demand curve is generally downward-sloping, there may be rare examples of goods that have upward-sloping demand curves. Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods (an inferior, but Staple food, staple good) and Veblen goods (goods made more fashionable by a higher price). By its very nature, conceptualising a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is true because each point on the demand curve is the answer to the question "If this buyer is faced with this potential price, how much of the product will it purchase?". If a buyer has market power, so its decision of how much to buy influences the market price, then the buyer is not "faced with" any price and the question is meaningless. Like with supply curves, economists distinguish between the demand curve of an individual and the market demand curve. The market demand curve is obtained by summing the quantities demanded by all consumers at each potential price, thus in the graph of the demand curve individuals' demand curves are added horizontally to obtain the market demand curve. The determinants of demand are: # Income. # Tastes and preferences. # Prices of related goods and services. # Consumers' expectations about future prices and incomes that can be checked. # Number of potential consumers.


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". The supply and demand model is a partial equilibrium model of economic equilibrium, where the clearance on the Market (economics), market of some specific good (economics), goods is obtained independently from prices and quantities in other markets. In other words, the prices of all substitute good, substitutes and complement good, complements as well as income levels of consumers are constant. This makes analysis much simpler than in a general equilibrium model which includes an entire economy. The dynamic process is that prices adjust until supply equals demand. It is a powerfully simple technique that allows one to study economic equilibrium, equilibrium, Pareto Efficiency, efficiency and comparative statics. The stringency of the simplifying assumptions inherent in this approach make the model considerably more tractable, but it may produce results which while seemingly precise do not effectively model real world economic phenomena. Partial equilibrium analysis examines the effects of policy action in creating equilibrium only in that particular sector or market which is directly affected, ignoring its effect in any other market or industry assuming that they being small will have little impact if any. Hence, this analysis is considered to be useful in constricted markets. Léon Walras first formalised the idea of a one-period economic equilibrium of the general economic system, but it was French economist Antoine Augustin Cournot and English political economist Alfred Marshall who developed tractable models to analyse an economic system.


Empirical estimation

Demand and supply relations in a market can be statistically estimated from price, quantity and other data with sufficient information in the model. This can be done with System of linear equations, simultaneous-equation methods of estimation in econometrics. Such methods allow solving for the model-relevant "structural coefficients", the estimated algebraic counterparts of the theory. The Identification (parameter), parameter identification problem is a common issue in "structural estimation". Typically, data on exogenous variables (that is, variables other than price and quantity, both of which are endogenous variables) are needed to perform such an estimation. An alternative to "structural estimation" is Reduced form, reduced-form estimation, which regresses each of the endogenous variables on the respective exogenous variables.


Macroeconomic uses of demand and supply

Demand and supply have also been generalised to explain macroeconomic variables in a market economy, including the Real GDP, quantity of total output and the general price level. The AD-AS model, Aggregate Demand–Aggregate Supply model may be the most direct application of supply and demand to macroeconomics, but other macroeconomic models also use supply and demand. Compared to microeconomic uses of demand and supply, different (and more controversial) theoretical considerations apply to such macroeconomic counterparts as aggregate demand and aggregate supply. Demand and supply are also used in macroeconomic theory to relate money supply and money demand to interest rates and to relate labor supply and labor demand to wage rates.


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". The phrase "supply and demand" was first used by James Denham-Steuart in his ''Inquiry into the Principles of Political Economy'', published in 1767.
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
used the phrase in his 1776 book ''The Wealth of Nations''. In ''The Wealth of Nations'', Smith generally assumed that the supply price was fixed, but that its "merit" (value) would decrease as its "scarcity" increased, in effect what was later also called the law of demand .
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, one of the most influential of the classical economists along with Thomas Malthus Thomas Robert Malthus (; 13/14 February 1766 – 23 December 1834) w ...

David Ricardo
titled one chapter of his 1817 work '' Principles of Political Economy and Taxation'' "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. Antoine Augustin Cournot first developed a mathematical model of supply and demand in his 1838 ''Researches into the Mathematical Principles of Wealth'', including diagrams. During the late 19th century, the marginalist school of thought emerged. This field mainly was started by William Stanley Jevons, Stanley Jevons, Carl Menger and Léon Walras. The key idea was that the price was set by the most expensive price—that is, the price at the margin. This was a substantial change from Adam Smith's thoughts on determining the supply price. 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''.


Role of government

In a capitalist system, the government protects private property and guarantees the right of citizens to choose their job. In most cases, the government does not prevent firms from determining what wages they will pay and what prices they will charge for their products. However, many countries have minimum wage laws and minimum safety standards. Under some versions of capitalism, the government carries out a number of economic functions, such as issuing money, supervising public utilities, and enforcing private contracts. Many countries have competition laws that prohibit monopolies and cartels. Despite anti-monopoly laws, large corporations can form near-monopolies in some industries. Such firms can temporarily drop prices and accept losses to prevent competition from entering the market and then raise them again once the threat of competition is reduced. In many countries, public utilities such as electricity, heating fuel and communications are able to operate as a monopoly under government regulation due to high economies of scale. 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.


Relationship to political freedom

In his book ''The Road to Serfdom'' (1944), Friedrich Hayek (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, Andrew Brennan (economist), Andrew Brennan and
Ronald Reagan Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician who served as the 40th president of the United States The president of the United States (POTUS) is the and of the . The president directs the of ...

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 is 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 "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".


Types

There are many variants of capitalism in existence that differ according to country and region. They vary in their institutional makeup and by their economic policies. The common features among all the different forms of capitalism is that they are predominantly based on the private ownership of the means of production and the production of goods and services for profit; the market-based allocation of resources; and the accumulation of capital. They include advanced capitalism, corporate capitalism, finance capitalism, free-market capitalism, mercantilism, social capitalism, state capitalism and welfare capitalism. Other variants of capitalism include anarcho-capitalism, community capitalism, humanistic capitalism, neo-capitalism, state monopoly capitalism, Supercapitalism (modern), supercapitalism 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 In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or verifiable record that is generally a ...

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 personality, legal entities. Private property is distinguishable from public property, which is owned by a state entity, and from Collective ownershi ...
of the
means of production The means of production is a concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
. ''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 Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until th ...
. 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.


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 utilized 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"
''Random House Webster's Unabridged Dictionary''.
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 simply 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.


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 most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
, 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.


Background

Accumulation can be measured as the monetary value of investments, the amount of income that is reinvested, or the change in the value of assets owned (the increase in the value of the capital stock). Using company balance sheets, tax data and direct Statistical survey, surveys as a basis, government statisticians estimate total investments and assets for the purpose of national accounts, national balance of payments and flow of funds statistics. The Federal Reserve, Reserve Banks and the Treasury usually provide interpretations and analysis of this data. Standard indicators include capital formation, gross fixed capital formation, fixed capital, household asset wealth and foreign direct investment. Organisations such as the International Monetary Fund, the UNCTAD, the World Bank Group, the OECD and the Bank for International Settlements use national investment data to estimate world trends. The Bureau of Economic Analysis, Eurostat and the Japan Statistical Office provide data on the United States, Europe and Japan respectively. Other useful sources of investment information are business magazines such as ''Fortune (magazine), Fortune, Forbes, The Economist, Business Week'' and so on as well as various corporate "Watchdog journalism, watchdog" organisations and non-governmental organisation publications. A reputable scientific journal is the ''Review of Income & Wealth''. In the case of the United States, the "Analytical Perspectives" document (an annex to the yearly budget) provides useful wealth and capital estimates applying to the whole country. In
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, M ...

Karl Marx
' economic theory, capital accumulation refers to the operation whereby profits are reinvested increasing the total quantity of capital. Capital is viewed by Marx as expanding value, that is, in other terms, as a sum of capital, usually expressed in money, that is transformed through human labor into a larger value, extracted as profits and expressed as money. Here, capital is defined essentially as economic or commercial asset Value (economics), value in search of additional value or surplus-value. This requires property relations which enable objects of value to be appropriated and owned, and trading rights to be established. Capital accumulation has a double origin, namely in trade and in Confiscation, expropriation, both of a legal or illegal kind. The reason is that a stock of capital can be increased through a process of exchange or "trading up", but also through directly taking an asset or resource from someone else without compensation. David Harvey (geographer), David Harvey calls this accumulation by dispossession. The continuation and progress of capital accumulation depends on the removal of obstacles to the expansion of trade and this has historically often been a violent process. As markets expand, more and more new opportunities develop for accumulating capital because more and more types of goods and services can be traded in. However, capital accumulation may also confront resistance when people refuse to sell, or refuse to buy (for example a Strike action, strike by investors or workers, or consumer resistance).


Concentration and centralisation

According to Marx, capital has the tendency for concentration and centralization in the hands of the wealthy. Marx explains: "It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. [...] Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many. [...] The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, ''caeteris paribus'', on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages [...] It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish".


Rate of accumulation

In Marxian economics, the rate of accumulation is defined as the value of the real net increase in the stock and flow, stock of capital in an accounting period and the proportion of realised surplus-value or profit-income which is reinvested, rather than consumed. This rate can be expressed by means of various ratios between the original capital outlay, the realised turnover, surplus-value or profit and reinvestments (e.g. the writings of the economist Michał Kalecki). Other things being equal, the greater the amount of profit-income that is disbursed as personal earnings and used for consumptive purposes, the lower the savings rate and the lower the rate of accumulation is likely to be. However, earnings spent on consumption can also stimulate market demand and higher investment. This is the cause of endless controversies in economic theory about "how much to spend, and how much to save". In a boom period of capitalism, the growth of investments is cumulative, i.e. one investment leads to another, leading to a constantly expanding market, an expanding labor force and an increase in the standard of living for the majority of the people. In a stagnating, decadent capitalism, the accumulation process is increasingly oriented towards investment on military and security forces, real estate, financial speculation and luxury consumption. In that case, income from value added, value-adding production will decline in favour of interest, rent and tax income, with as a corollary an increase in the level of permanent unemployment. The more capital one owns, the more capital one can also borrow. The inverse is also true and this is one factor in the widening gap between the rich and the poor. Ernest Mandel emphasised that the rhythm of capital accumulation and growth depended critically on the division of a society's social product between "necessary product" and "surplus product"; and the division of the surplus product between investment and Consumption (economics), consumption. In turn, this allocation pattern reflected the outcome of competition among capitalists, competition between capitalists and workers and competition between workers. The pattern of capital accumulation can therefore never be simply explained by commercial factors as it also involved social factors and Economic power, power relationships.


Circuit of capital accumulation from production

Strictly speaking, capital has accumulated only when realised Profit (accounting), profit income has been reinvested in capital assets. As suggested in the first volume of Marx' ''Das Kapital'', the process of capital accumulation in production has at least seven distinct but linked moments: * The initial investment of
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
(which could be borrowed capital) in
means of production The means of production is a concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
and
labor power Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or by Caesarean section. In 2015, there were about 13 ...
. * The command over surplus-labour and its appropriation. * The valorisation (increase in value) of capital through production of new outputs. * The appropriation of the new output produced by employees, containing the added value. * The realisation of surplus-value through output sales. * The appropriation of realised surplus-value as (profit) income after deduction of costs. * The reinvestment of profit income in production. All of these moments do not refer simply to an "economic" or commercial process. Rather, they assume the existence of legal, social, cultural and economic power conditions, without which creation, distribution and circulation of the new wealth could not occur. This becomes especially clear when the attempt is made to create a market where none exists, or where people refuse to trade.


Simple and expanded reproduction

In the second volume of ''Das Kapital'', Marx continues the story and shows that with the aid of bank credit (finance), credit capital in search of growth can more or less smoothly mutate from one form to another, alternately taking the form of money capital (liquid deposits, securities and so on), commodity capital (tradable products, real estate and the like), or production capital (
means of production The means of production is a concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
and labor power). His discussion of the simple and expanded reproduction (economics), reproduction of the conditions of production offers a more sophisticated model of the parameters of the accumulation process as a whole. At simple reproduction, a sufficient amount is produced to sustain society at the given living standard; the stock of capital stays constant. At expanded reproduction, more product-value is produced than is necessary to sustain society at a given living standard (a surplus product); the additional product-value is available for investments which enlarge the scale and variety of production. According to Marx, the bourgeois claim that there is no economic law according to which capital is necessarily re-invested in the expansion of production, that instead this depends on anticipated profitability, market expectations and perceptions of investment risk. Such statements only explain the subjective experiences of investors and ignore the objective realities which would influence such opinions. As Marx states in the second volume of ''Das Kapital'', simple reproduction only exists if the variable and surplus capital realised by Dept. 1—producers of means of production—exactly equals that of the constant capital of Dept. 2, producers of articles of consumption (p. 524). Such equilibrium rests on various assumptions, such as a constant labor supply (no population growth). Accumulation does not imply a necessary change in total magnitude of value produced, but can simply refer to a change in the composition of an industry (p. 514). Ernest Mandel introduced the additional concept of contracted economic reproduction, i.e. reduced accumulation where business operating at a loss outnumbers growing business, or economic reproduction on a decreasing scale, for example due to wars, natural disasters or devalorisation. Balanced
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 economics, economy over time. Statisticians conventionally measure such growth as the percent rate of i ...

economic growth
requires that different factors in the accumulation process expand in appropriate proportions. However, markets themselves cannot spontaneously create that balance and in fact what drives business activity is precisely the imbalances between supply and demand: inequality is the motor of growth. This partly explains why the worldwide pattern of economic growth is very uneven and unequal, even although markets have existed almost everywhere for a very long-time. Some people argue that it also explains government regulation of market trade and protectionism.


Capital accumulation as social relation

"Accumulation of capital" sometimes also refers in Marxist writings to the reproduction of capitalist
social relations In social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. The term was formerly used to refer t ...
(institutions) on a larger scale over time, i.e. the expansion of the size of the
proletariat The proletariat (; ) is the social class of wage labor, wage-earners, those members of a society whose only possession of significant economic value is their labour power (their capacity to work). A member of such a class is a proletarian. Marx ...

proletariat
and of the wealth owned by the bourgeoisie. This interpretation emphasises that capital ownership, predicated on command over labor, is a social relation: the growth of capital implies the growth of the working class (a "law of accumulation"). In the first volume of ''Das Kapital'', Marx had illustrated this idea with reference to Edward Gibbon Wakefield's theory of colonisation: In the Capital, Volume III, third volume of ''Das Kapital'', Marx refers to the "fetishism of capital" reaching its highest point with interest-bearing capital because now capital seems to grow of its own accord without anybody doing anything:


Wage labour

Wage labour refers to the sale of Labour economics, labour under a formal or informal employment contract to an employer. These transactions usually occur in a labour 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 needed to produce products and services. Production (economics), Production is the act of making goods or services by applying
labor power Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or by Caesarean section. In 2015, there were about 13 ...
.Robbins, Richard H. ''Global problems and the culture of capitalism''. Boston: Allyn & Bacon, 2007. Print. Critics of the capitalist mode of production see wage labour as a major, if not defining, aspect of hierarchical industrial systems. Most opponents of the institution support worker self-management and economic democracy as alternatives to both wage labour and capitalism. While most opponents of the wage system blame the capitalist owners of the means of production for its existence, most anarchists and other libertarian socialists also hold the state as equally responsible as it exists as a tool utilised by capitalists to subsidise themselves and protect the institution of privatism, private ownership of the means of production. As some opponents of wage labour take influence from Marxist propositions, many are opposed to private property, but maintain respect for personal property.


Types

The most common form of wage labour currently is ordinary direct, or "full-time", employment in which a free worker sells their labour for an indeterminate time (from a few years to the entire career of the worker) in return for a money-wage or salary and a continuing relationship with the employer (which it does not in general offer contractors or other irregular staff). However, wage labour takes many other forms and explicit as opposed to implicit (i.e. conditioned by local labour and tax law) contracts are not uncommon. Economic history shows a great variety of ways in which labour is traded and exchanged. The differences show up in the form of: * Employment status: a worker could be employed full-time, part-time, or on a casual basis. The worker could be employed for example temporarily for a specific project only, or on a permanent basis. Part-time wage labour could combine with part-time self-employment. The worker could be employed also as an Apprenticeship, apprentice. * Civil (legal) status: the worker could for example be a free citizen, an indentured labourer, the subject of forced labour (including some prison or army labour); a worker could be assigned by the political authorities to a task, they could be a slavery, semi-slave or a serfdom, serf bound to the land who is hired out part of the time. So the labour might be performed on a more or less voluntary basis, or on a more or less involuntary basis, in which there are many gradations. * Method of payment (remuneration or Compensation of employees, compensation): the work done could be paid "in cash" (a money-wage) or "in kind" (through receiving goods and/or services), or in the form of "Piecework, piece rates" where the wage is directly dependent on how much the worker produces. In some cases, the worker might be paid in the form of credit used to buy goods and services, or in the form of Employee stock option, stock options or Share (finance), shares in an enterprise. * Method of hiring: the worker might engage in a labour-contract on their own initiative, or the worker might hire out their labour as part of a group. However, they may also hire out their labour via an intermediary (such as an employment agency) to a third party. In this case, the worker is paid by the intermediary, but works for a third party which pays the intermediary. In some cases, labour is Subcontracting, subcontracted several times, with several intermediaries. Another possibility is that the worker is assigned or posted to a job by a political authority, or that an agency hires out a worker to an enterprise together with the
means of production The means of production is a concept that encompasses the social use and ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest record ...
.


Criticism

Criticism of capitalism comes from various political and philosophical approaches, including anarchist, socialist, religious and nationalist viewpoints. Some believe that capitalism can only be overcome through revolution while others believe that structural change can come slowly through Reformism, political reforms. Some critics believe there are merits in capitalism and wish to balance it with some form of social control, typically through government regulation (e.g. the social market movement). Prominent among critiques of capitalism are accusations that capitalism is inherently Exploitation of labour, exploitative, Marx's theory of alienation, alienating, unstable, unsustainable, Economic efficiency, inefficient, creates massive economic inequality, commodity, commodifies people, Environmental degradation, degrades the environment, is anti-democratic and leads to an erosion of human rights while it incentivizes imperialist expansion and Military–industrial complex, war.


See also

* Anti-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 * Rent-seeking * State monopoly capitalism * Sustainable capitalism


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. * * Shaikh, Anwar
"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, Economic ideologies Economic liberalism Production economics Profit Social philosophy Western culture Economics Finance