Capitalism Capitalism is an economic system in which trade, industry, and the means of production [1][2] 2] are largely or entirely privately owned and operated for profit for profit..[1][ Central characteristics of capitalism include capital accumulation, accumulation, competitive markets and markets and wage labour .[3] n a capitalist economy, the parties to a transaction typically determine the prices at which assets, goods, and services are e!changed e!changed..["]
#he degree of competition, role of intervention of intervention and and regulation, and scope of public ownership varies across different models of capitalism.[$] %conomists, political %conomists, political economists,, and historians economists historians have have taken different perspectives in their analysis of capitalism and recogni&ed various forms of it in practice. #hese include laissez-faire capitalism, welfare capitalism, capitalism, crony capitalism and state capitalism' capitalism' each highlighting varying degrees of dependency on markets, public ownership, and inclusion ofsocial of social policies.. #he e!tent to which different markets are free, as well as the rules defining policies private property, is a matter of politics and policy and policy.. (any states have what are termed capitalist mi!ed economies, economies, referring to a mi! between planned between planned and and market)driven [*] elements. Capitalism has e!isted under many forms of government, government, in many different [+] times, places, and cultures. ollowing the demise of feudalism feudalism,, capitalism became the dominant economic system in the -estern world. world. Capitalism was carried across the world by broader processes of globali&ation globali&ation such such as imperialism and, by the end of the nineteenth century, became the dominant global dominant global economic system, in turn intensifying processes of economic and other globali&ation.[] /ater, in the 20th century, capitalism overcame a challenge by centrally)planned [][10] 10] the encompassing system worldwide, economies and is now the encompassing worldwide,[][ with the mi!ed economy being its dominant form in the industriali&ed -estern -estern world. arry ills and 4aul 5ames write6
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#he process remains uneven, but notwithstanding the continuing importance of national and regional economies today, global capitalism is undoubtedly the dominant framework of economics in the world. #here are many debates about what this means, but across the political spectrum 7capitalism8 has become the taken)for)granted way of naming the economic pattern that weaves together the current dominant modes of production and e!change.[11]
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9ifferent economic perspectives emphasi&e specific elements of capitalism in their preferred definition. Laissez-faire definition. Laissez-faire and and liberal economists emphasi&e the degree to which government does not have control over markets and the importance of property property rights. rights.[12] [13] :eoclassical and ;eynesian macro)economists emphasi&e the need for government regulation to prevent monopolies monopolies and and to soften the effects of the boom the boom and bust cycle. bust cycle.[1"] (ar!ian economists emphasi&e the role of capital accumulation, e!ploitation e!ploitation and and wage labor . (ost political economists emphasi&e private property as well, in addition to power to power relations, wage labor, class class,, and the uni
4roponents of capitalism argue that it creates more prosperity than any other economic system, and that its benefits are mainly to the ordinary person. person.[1$] Critics of capitalism variously associate it with economic instability,[1*] an inability to provide for the well) being of all people,[1+] and an unsustainable danger to the natural environment.[1] =ocialists maintain =ocialists maintain that, although capitalism is superior to all previously e!isting economic systems >such as feudalism or slavery?, the contradiction between class interests will only be resolved by advancing into a completely social system of production and distribution in which all persons have an e
History (ain article6 Aistory of capitalism %conomic trade for profit has e!isted since at least the second millennium C.[22] %arly slam promulgated capitalist economic policies, which migrated to %urope through trade page needed ] [23][[ page partners from cities such as Denice. Denice.[23] Aowever, capitalism in its modern form is usually traced to the emergence of agrarian capitalism and mercantilism of the %arly (odern era. era. Agrarian capitalism
#he economic foundations of the feudal agricultural system began to shift substantially in 1*th century %ngland' the manorial system had broken down by this time, and land began to be concentrated in the hands of fewer landlords with increasingly large estates. nstead of a serf )based )based system of labor, workers were increasingly being employed as part of a broader and e!panding money economy. e conomy. #he system put pressure on both the landlords and the tenants to increase the productivity of the agriculture to make profit' the weakened coercive power of the aristocracy aristocracy to to e!tract peasant surpluses surpluses encouraged encouraged them to try out better methods, and the tenants also had incentive to improve their methods, in order to flourish in an increasingly competitive labor market. market. #erms of rent for the land were becoming subEect to economic market forces rather than the previous stagnant system of custom and feudal obligation. [2"] y the early 1+th)century, %ngland was a centrali&ed state, in which much of the feudal order of (edieval %urope had been swept away. #his centrali&ation was strengthened by a good system of roads and a disproportionately large capital city, /ondon /ondon.. #he capital
acted as a central market hub for the entire country, creating a very large internal market for goods, instead of the fragmented feudal holdings that prevailed in most parts of the Continent.. Continent Mercantilism
(ain article6 (ercantilism #he economic doctrine that held sway between the si!teenth and eighteenth centuries is commonly described as mercantilism mercantilism..[2$] #his period, the Fge of 9iscovery, 9iscovery, was associated with the geographic e!ploration of foreign lands by merchant traders, especially from %ngland and the /ow Countries. Countries. (ercantilism was a system of trade for profit, although commodities were still largely produced by non)capitalist production methods.[+] (ost scholars consider the era of merchant capitalism and mercantilism as the [2*][2+] 2+] origin of modern capitalism,[2*][ although ;arl 4olanyi argued 4olanyi argued that the hallmark of capitalism is the establishment of generali&ed markets for what he referred to as the @fictitious commodities@6 land, labor, and money. Fccordingly, Fccordingly, he argued that @not until 13" was a competitive labor market established in %ngland, hence industrial capitalism as a social system cannot be said to have e!isted before that date.@[2] %ngland began a large)scale and integrative approach to mercantilism during the %li&abethan %ra >1$$G1*03?. F systematic systematic and coherent e!planation of balance of trade was made public through #homas (unH (unHs argument England's argument England's Treasure Treasure by Forraign Trade, or the Balance of our Forraign Trade is The ule of !ur Treasure" t Treasure" t was written [2] in the 1*20s and published in 1**". Fmong the maEor tenets of mercantilist theory was bullionism was bullionism,, a doctrine stressing the importance of accumulating precious accumulating precious metals. metals. (ercantilists argued that a state should e!port more goods than it imported so that foreigners would have to pay the difference in precious metals. (ercantilists argued that only raw materials that could not be e!tracted at home should be imported' and promoted government subsidies subsidies,, such as the granting of monopolies and protective tariffs tariffs,, which mercantilists thought were necessary to encourage home production of manufactured goods. %uropean merchants merchants,, backed by state controls, subsidies, and monopolies monopolies,, made most of their profits from the buying and selling of goods. n the words of rancis acon, acon, the purpose of mercantilism was @the opening and well)balancing w ell)balancing of trade' the cherishing of manufacturers' the banishing of idleness' the repressing of waste and e!cess by sumptuary laws' the improvement and husbanding of the soil' the regulation of prices ...@[30] #he ritish %ast ndia Company and the 9utch %ast ndia Company inaugurated Company inaugurated an [31][32] [31][ 32] e!pansive era of commerce and trade. #hese companies were characteri&ed by their colonial and colonial and e!pansionary e!pansionary powers powers given to them by nation)states.[31] 9uring this era, merchants, who had traded under the previous stage of mercantilism, invested capital in the %ast ndia Companies and other colonies, seeking a return on investment. investment.
Industrial capitalism
F -att steam engine. #he steam engine fuelled primarily by coal propelled the ndustrial Ievolution in reat ritain.[33] F new group of economic theorists, led by 9avid Aume[3"] and Fdam =mith, in the mid) 1th century, challenged fundamental mercantilist doctrines such as the belief that the amount of the worldHs wealth remained constant and that a state could only increase its wealth at the e!pense of another state. 9uring the ndustrial Ievolution, the industrialist replaced the merchant as a dominant factor in the capitalist system and affected the decline of the traditional handicraft skills of artisans, guilds, and Eourneymen. Flso during this period, the surplus generated by the rise of commercial agriculture encouraged increased mechani&ation of agriculture. ndustrial capitalism marked the development of the factory system of manufacturing, characteri&ed by a comple! division of labor between and within work process and the routine of work tasks' and finally established the global domination of the capitalist mode of production.[2$] ritain also abandoned its protectionist policy, as embraced by mercantilism. n the 1th century, Iichard Cobden and 5ohn right, who based their beliefs on the (anchester =chool, initiated a movement to lower tariffs. [3$] n the 1"0s, ritain adopted a less protectionist policy, with the repeal of the Corn /aws and the :avigation Fcts.[2$] ritain reduced tariffs and
#he gold standard formed the financial basis of the international economy from 1+0G 11". ndustriali&ation allowed cheap production of household items using economies of scale, while rapid population growth created sustained demand for commodities. lobali&ation in this period was decisively shaped by nineteenth)century imperialism.[3*] Ffter the irst and =econd Jpium -ars and the completion of ritish con
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#he inhabitant of /ondon could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably e!pect their early delivery upon his doorstep. (ilitarism and imperialism of racial and cultural
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rivalries were little more than the amusements of his daily newspaper. -hat an e!traordinary episode in the economic progress of man was that age which came to an end in Fugust 11".[3+] #he global financial system was mainly tied to the gold standard in this period. #he Knited ;ingdom first formally adopted this standard in 121. =oon to follow was Canada in 1$3, :ewfoundland in 1*$, and the Knited =tates and ermany >de #ure? in 1+3. :ew technologies, such as the telegraph, the transatlantic cable, the Iadiotelephone, the steamship and railway allowed goods and information to move around the world at an unprecedented degree.[3] Keynesianism and Monetarism
(ain articles6 ;eynesianism and (onetarism n the period following the global depression of the 130s, the state played an increasingly prominent role in the capitalistic system throughout much of the world. #he post war era was greatly influenced by ;eynesian economic stabili&ation policies. #he postwar boom ended in the late 1*0s and early 1+0s, and the situation was worsened by the rise of stagflation.[3] (onetarism, a theoretical alternative to ;eynesianism that is more compatible with laisse&)faire, gained increasing prominence in the capitalist world, especially under the leadership of Ionald Ieagan in the K= and (argaret #hatcher in the K; in the 10s. 4ublic and political interest began shifting away from the so)called collectivist concerns of ;eynesHs managed capitalism to a focus on individual choice, called @remarketi&ed capitalism.@ ["0]
Economic elements #he essential feature of capitalism is the investment of money in order to make a profit. ["1]
n a capitalist economic system capital assets can be owned and controlled by private persons, labor is purchased for money wages, capital gains accrue to private owners, and the price mechanism is utili&ed to allocate capital goods between competing uses. #he e!tent to which the price mechanism is used, the degree of competitiveness, the balance between the public sector and the private sector, and the e!tent of government intervention in markets are the factors which distinguish several forms of capitalism in the modern world.[$] n free)market and laissez-faire forms of capitalism, markets are utili&ed most e!tensively with minimal or no regulation over the pricing mechanism. n mi!ed economies, which are almost universal today,["2] markets continue to play a dominant role but are regulated to some e!tent by government in order to correct market failures, promote social welfare,
conserve natural resources, fund defense and public safety or for other reasons. n 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. Capitalism and capitalist economics is often contrasted with socialism, though the meaning of the word socialism has changed over time. #he original meaning of socialism was state ownership of the means of production. #oday, the word is often used to mean any state control of economic decision)making. Money, capital, and accumulation
(oney is primarily a standardi&ed medium of e!change, and final means of payment, that serves to measure the value of all goods and commodities in a standard of value. t is an abstraction of economic value and medium of e!change that eliminates the cumbersome system of barter by separating the transactions involved in the e!change of products, thus greatly facilitating speciali&ation and trade through encouraging the e!change of commodities. Capitalism involves the further abstraction of money into other e!changeable assets and the accumulation of money through ownership, e!change, interest and various other financial instruments. #he accumulation of capital refers to the process of @making money@, or growing an initial sum of money through investment in production. Capitalism is based around the accumulation of capital, whereby financial capital is invested in order to reali&e a profit and then reinvested into further production in a continuous process of accumulation. n (ar!ian economic theory, this dynamic is called the law of value. Capital and financial marets
#he defining feature of capitalist markets, in contrast to markets and e!change in pre) capitalist societies like feudalism, is the e!istence of a market for capital goods >the means of production?, meaning e!change)relations >business relationships? e!ist within the production process. Fdditionally, capitalism features a market for labor . #his distinguishes the capitalist market from pre)capitalist societies which generally only contained market e!change for final goods and secondary goods. #he @market@ in capitalism refers to capital markets and financial markets. #hus, there are three main markets in a typical capitalistic economy6 labor, goods and services, and financial. !age labor and class structure
-age labor refers to the class)structure of capitalism, whereby workers receive either a wage or a salary, and owners receive the profits generated by the factors of production employed in the production of economic value. ndividuals who possess and supply financial capital to productive ventures become owners, either Eointly >as shareholders? or individually. n (ar!ian economics these owners of the means of production and suppliers of capital are generally called capitalists. #he description of the role of the capitalist has shifted, first referring to a useless intermediary between producers to an
employer of producers, and eventually came to refer to owners of the means of production.[21] #he term capitalist is not generally used by supporters of mainstream economics. @-orkers@ includes those who e!pend both manual and mental >or creative? labor in production, where production does not simply mean physical production but refers to the production of both tangible and intangible economic value. @Capitalists@ are individuals who derive income from investments. /abor includes all physical and mental human resources, including entrepreneurial capacity and management skills, which are needed to produce products and services. 4roduction is the act of making goods or services by applying labor power .["3][""] Macroeconomics
(acroeconomics keeps its eyes on things such as inflation6 a general increase in prices and fall in the purchasing value of money' growth6 how much money a government has and how the macroeconomic side? set both national and international regulations that keep track of prices and corporationsH >microeconomics? growth rates, set prices, and trade, while the corporations influence what federal laws are set.["$]["*]["+]
"ypes of capitalism #here are many variants of capitalism in e!istence that differ according to country and region. #hey vary in their institutional makeup and by their economic policies. #he common features among all the different forms of capitalism is that they are based on the production of goods and services for profit, predominately market)based allocation of resources, and they are structured upon the accumulation of capital. #he maEor forms of capitalism are listed below6 Mercantilism
(ain articles6 (ercantilism and 4rotectionism (ercantilism is a nationalist form of early capitalism that came into e!istence appro!imately in the late 1*th century. t is characteri&ed by the intertwining of national business interests to state)interest and imperialism, and conseritain, rance, etc.?. (ercantilism holds that the wealth of
a nation is increased through a positive balance of trade with other nations, and corresponds to the phase of capitalist development called the 4rimitive accumulation of capital. #ree$maret economy
=ee also6 ree market and /aisse&)faire ree)market economy refers to a capitalist economic system where prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of e
(ain articles6 =ocial market and :ordic model F social)market economy is a nominally free)market system where government intervention in price formation is kept to a minimum but the state provides significant services in the area of social security, unemployment benefits and recognition of labor rights through national collective bargaining arrangements. #his model is prominent in -estern and :orthern %uropean countries, and 5apan, albeit in slightly different configurations. #he vast maEority of enterprises are privately owned in this economic model. Ihine capitalism refers to the contemporary model of capitalism and adaptation of the social market model that e!ists in continental -estern %urope today. %tate capitalism
(ain article6 =tate capitalism =tate capitalism consists of state ownership of the means of production within a state, and the organi&ation of state enterprises as commercial, profit)seeking businesses. #he debate between proponents of private versus state capitalism is centered around
Corporate capitalism
(ain article6 Corporate capitalism =ee also6 =tate monopoly capitalism and Crony capitalism Corporate capitalism is a free or mi!ed)market economy characteri&ed by the dominance of hierarchical, bureaucratic corporations. Mi&ed economy
(ain article6 (i!ed economy =ee also6 %conomic interventionism F mi!ed economy is a largely market)based 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. #he degree of intervention in markets varies among different countries. =ome mi!ed economies, such as rance under dirigisme, also featured a degree of indirect economic planning over a largely capitalist)based economy. (ost capitalist economies are defined as @mi!ed economies@ to some degree. 't(er
Jther variants of capitalism include6 • •
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Fnarcho)capitalism Community capitalism Crony capitalism
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inancial capitalism /ate capitalism :eo)capitalism
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=upercapitalism #echnocapitalism
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-elfare capitalism
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4ost)capitalism
inance capitalism
Etymology and early usage #he term capitalist as referring to an owner of capital >rather than its meaning of someone adherent to the economic system? shows earlier recorded use than the term capitalism, dating back to the mid)1+th century. Capitalist is derived from capital , which evolved from capitale, a late /atin word based on caput , meaning @head@ L also the origin of chattel and cattle in the sense of movable property >only much later to refer only to livestock?. Capitale emerged in the 12th to 13th centuries in the sense of referring to funds, stock of merchandise, sum of money, or money carrying interest.[$+][$][$] y 123 it was used in the sense of the capital assets of a trading firm. t was fre
#he $ollandische %ercurius uses capitalists in 1*33 and 1*$" to refer to owners of capital.[$+] n rench, Mtienne Clavier referred to capitalistes in 1+,[*0] si! years before its first recorded %nglish usage by Frthur Noung in his work Travels in France >1+2?.[$] [*1] 9avid Iicardo, in his &rinciples of &olitical Economy and Taation >11+?, referred to @the capitalist@ many times.[*2] =amuel #aylor Coleridge, an %nglish poet, used capitalist in his work Table Tal( >123?.[*3] 4ierre)5oseph 4roudhon used the term capitalist in his first work, )hat is &roperty* >1"0? to refer to the owners of capital. enEamin 9israeli used the term capitalist in his 1"$ work +ybil .[$] ;arl (ar! and riedrich %ngels used the term capitalist > apitalist ? in The Communist %anifesto >1"? to refer to a private owner of capital. Fccording to the !ford English ictionary >J%9?, the term capitalism was first used by novelist -illiam (akepeace #hackeray in 1$" in The .e/comes, where he meant @having ownership of capital@.[$] Flso according to the J%9, Carl Fdolph 9ouai, a erman)Fmerican socialist and abolitionist, used the term private capitalism in 1*3. #he initial usage of the term capitalism in its modern sense has been attributed to /ouis lanc in 1$0 and 4ierre)5oseph 4roudhon in 1*1.[*"] ;arl (ar! and riedrich %ngels referred to the capitalistic system >(apitalistisches +ystem?[*$][**] and to the capitalist mode of production >(apitalistische &rodu(tionsform? in as apital >1*+?.[*+] #he use of the word @capitalism@ in reference to an economic system appears twice in Dolume of as apital , p. 12" >erman edition?, and in Theories of +urplus 0alue, tome , p. "3 >erman edition?. (ar! did not e!tensively use the form capitalism, but instead those of capitalist and capitalist mode of production, which appear more than 2*00 times in the trilogy as apital . (ar!Hs notion of the capitalist mode of production is characterised as a system of primarily private ownership of the means of production in a mainly market economy, with a legal framework on commerce and a physical infrastructure provided by the state. Ae believed that no legal framework was available to protect the laborers, and so e!ploitation by the companies was rife.[*][ page needed ] %ngels made more fre1*+, 1$, 1"? contain the word capitalist more than 2,*00 times. Fn 1++ work entitled Better Times by Augh abutt and an 1" article in the &all %all 1azette also used the term capitalism.[$] F later use of the term capitalism to describe the production system was by the erman economist -erner =ombart, in his 102 book %odern Capitalism > er moderne apitalismus?.[*] =ombartHs close friend and colleague, (a! -eber , also used capitalism in his 10" book The &rotestant Ethic and the +pirit of Capitalism > ie protestantische Ethi( und der 1eist des apitalismus?.
)erspecti*es Classical political economy
(ain articles6 Classical economics and Classical liberalism #he classical school of economic thought emerged in ritain in the late 1th century. #he classical political economists Fdam =mith, 9avid Iicardo, 5ean)aptiste =ay, and 5ohn =tuart (ill published analyses of the production, distribution and e!change of goods in a market that have since formed the basis of study for most contemporary economists. n rance, H4hysiocratsH like ranOois Puesnay promoted free trade based on a conception that wealth originated from land. PuesnayHs Tableau 2conomi3ue >1+$?, described the economy analytically and laid the foundation of the 4hysiocratsH economic theory, followed by Fnne Iobert 5ac1++*? are usually taken as the beginning of classical political economy. =mith devised a set of concepts that remain strongly associated with capitalism today. Ais theories regarding the @invisible hand@ are commonly interpreted to mean individual pursuit of self)interest unintentionally producing collective good for society. t was necessary for =mith to be so forceful in his argument in favor of free markets because he had to overcome the popular mercantilist sentiment of the time period.[+0] Ae critici&ed monopolies, tariffs, duties, and other state enforced restrictions of his time and believed that the market is the most fair and efficient arbitrator of resources. #his view was shared by 9avid Iicardo, second most important of the classical political economists and one of the most influential economists of modern times.[+1] n !n the &rinciples of &olitical Economy and Taation >11+?, he developed the law of comparative advantage, which e!plains why it is profitable for two parties to trade, even if one of the trading partners is more efficient in every type of economic production. #his principle supports the economic case for free trade. Iicardo was a supporter of =ayHs /aw and held the view that full employment is the normal e
be efficiently implemented by private entities. Aowever, he preferred that these goods should be paid proportionally to their consumption >e.g. putting a toll?. n addition, he advocated retaliatory tariffs to bring about free trade, and copyrights and patents to encourage innovation.[+*] Mar&ist political economy
(ain article6 (ar!ian economics ;arl (ar! considered capitalism to be a historically specific mode of production >the way in which the productive property is owned and controlled, combined with the corresponding social relations between individuals based on their connection with the process of production? in which capitalism has become the dominant mode of production. [2$]
#he capitalist stage of development or @ bourgeois society,@ for (ar!, represented the most advanced form of social organi&ation to date, but he also thought that the working classes would come to power in a worldwide socialist or communist transformation of human society as the end of the series of first aristocratic, then capitalist, and finally working class rule was reached.[++][+] ollowing Fdam =mith, (ar! distinguished the use value of commodities from their e!change value in the market. Capital, according to (ar!, is created with the purchase of commodities for the purpose of creating new commodities with an e!change value higher than the sum of the original purchases. or (ar!, the use of labor power had itself become a commodity under capitalism' the e!change value of labor power, as reflected in the wage, is less than the value it produces for the capitalist. #his difference in values, he argues, constitutes surplus value, which the capitalists e!tract and accumulate. n his book Capital , (ar! argues that the capitalist mode of production is distinguished by how the owners of capital e!tract this surplus from workersLall prior class societies had e!tracted surplus labor , but capitalism was new in doing so via the sale)value of produced commodities.[+] Ae argues that a core re11*?, further developed (ar!ist theory and argued that capitalism necessarily led to monopoly capitalism and the e!port of capitalLwhich he also called @imperialism@Lto find new
markets and resources, representing the last and highest stage of capitalism.["] =ome 20th)century (ar!ian economists consider capitalism to be a social formation where capitalist class processes dominate, but are not e!clusive.[$] Capitalist class processes, to these thinkers, are simply those in which surplus labor takes the form of surplus value, usable as capital' other tendencies for utili&ation of labor nonetheless e!ist simultaneously in e!isting societies where capitalist processes are predominant. Aowever, other late (ar!ian thinkers argue that a social formation as a whole may be classed as capitalist if capitalism is the mode by which a surplus is etracted , even if this surplus is not produced by capitalist activity, as when an absolute maEority of the population is engaged in non)capitalist economic activity.[*] n Limits to Capital >12?, 9avid Aarvey outlines an overdetermined, @spatially restless@ capitalism coupled with the spatiality of crisis formation and resolution.[+] Aarvey used (ar!Hs theory of crisis to aid his argument that capitalism must have its @fi!es@ but that we cannot predetermine what fi!es will be implemented, nor in what form they will be. Ais work on contractions of capital accumulation and international movements of capitalist modes of production and money flows has been influential.[] Fccording to Aarvey, capitalism creates the conditions for volatile and geographically uneven development [] !eberian political sociology
n social science, the understanding of the defining characteristics of capitalism has been strongly influenced by the erman sociologist, (a! -eber . -eber considered market e!change, a voluntary supply of labor and a planned division of labor within the enterprises as defining features of capitalism. Capitalist enterprises, in contrast to their counterparts in prior modes of economic activity, were directed toward the rationali&ation of production, ma!imi&ing efficiency and productivity G a tendency embedded in a sociological process of enveloping rationali&ation that formed modern legal bureaucracies in both public and private spheres.[0] Fccording to -eber, workers in pre) capitalist economies understood work in terms of a personal relationship between master and Eourneyman in a guild, or between lord and peasant in a manor .[1] or these developments of capitalism to emerge, -eber argued, it was necessary the development of a @capitalist spirit@' that is, ideas and habits that favor a rational pursuit of economic gain. #hese ideas, in order to propagate a certain manner of life and come to dominate others, @had to originate somewhere ... as a way of life common to whole groups of men@.[0] n his book The &rotestant Ethic and the +pirit of Capitalism >10"G 10$?, -eber sought to trace how a particular form of religious spirit, infused into traditional modes of economic activity, was a condition of possibility of modern western capitalism. or -eber, the Hspirit of capitalismH was, in general, that of ascetic 4rotestantism' this ideology was able to motivate e!treme rationali&ation of daily life, a propensity to accumulate capital by a religious ethic to advance economically through hard and diligent work, and thus also the propensity to reinvest capital. #his was sufficient, then, to create @self)mediating capital@ as conceived by (ar!.
#his is pictured in the 4rotestant understanding of beruf [2] G whose meaning encompass at the same time profession, vocation, and calling G as e!emplified in 4roverbs 2262, @=eest thou a man diligent in his callingQ Ae shall stand before kings@. n the &rotestant Ethic, -eber describes the developments of this idea of calling from its religious roots, through the understanding of someoneHs economic success as a sign of his salvation, until the conception that moneymaking is, within the modern economic order, the result and the e!pression of diligence in oneHs calling. inally, as the social mores critical for its development became no longer necessary for its maintenance, modern western capitalism came to represent the order @now bound to the technical and economic conditions of machine production which today determine the lives of all the individuals who are born into this mechanism, not only those directly concerned with economic acp. 123?.[3] #his is further seen in his criticism of @specialists without spirit, hedonists without a heart@ that were developing, in his opinion, with the fading of the original 4uritan @spirit@ associated with capitalism. Institutional economics
(ain article6 nstitutional economics nstitutional economics, once the main school of economic thought in the Knited =tates, holds that capitalism cannot be separated from the political and social system within which it is embedded. t emphasi&es the legal foundations of capitalism >see 5ohn I. Commons? and the evolutionary, habituated, and volitional processes by which institutions are erected and then changed. Jne key figure in institutional economics was #horstein Deblen who in his book, #he #heory of the /eisure Class >1?, analy&ed the motivations of wealthy people in capitalism who conspicuously consumed their riches as a way of demonstrating success. #he concept of conspicuous consumption was in direct contradiction to the neoclassical view that capitalism was efficient. n #he #heory of usiness %nterprise >10"? Deblen distinguished the motivations of industrial production for people to use things from business motivations that used, or misused, industrial infrastructure for profit, arguing that the former often is hindered because businesses pursue the latter. Jutput and technological advance are restricted by business practices and the creation of monopolies. usinesses protect their e!isting capital investments and employ e!cessive credit, leading to depressions and increasing military e!penditure and war through business control of political power. German Historical %c(ool and Austrian %c(ool
(ain articles6 Aistorical school of economics and Fustrian =chool
rom the perspective of the erman Aistorical =chool, capitalism is primarily identified in terms of the organi&ation of production for markets. Flthough this perspective shares similar theoretical roots with that of -eber, its emphasis on markets and money lends it different focus.[2$] or followers of the erman Aistorical =chool, the key shift from traditional modes of economic activity to capitalism involved the shift from medieval restrictions on credit and money to the modern monetary economy combined with an emphasis on the profit motive. n the late 1th century, the erman Aistorical =chool of economics diverged, with the emerging Fustrian =chool of economics, led at the time by Carl (enger . /ater generations of followers of the Fustrian =chool continued to be influential in -estern economic thought in the early part of the 20th century. Fustrian)born economist 5oseph =chumpeter , sometimes associated with the =chool,["] emphasi&ed the @creative destruction@ of capitalismLthe fact that market economies undergo constant change. =chumpeter argued that at any moment in time there are rising industries and declining industries. =chumpeter, and many contemporary economists influenced by his work, argue that resources should flow from the declining to the e!panding industries for an economy to grow, but they recogni&ed that sometimes resources are slow to withdraw from the declining industries because of various forms of institutional resistance to change. #he Fustrian economists /udwig von (ises and riedrich Aayek were among the leading defenders of market economy against 20th century proponents of socialist planned economies. (ises and Aayek argued that only market capitalism could manage a comple!, modern economy. =ince a modern economy produces such a large array of distinct goods and services, and consists of such a large array of consumers and enterprises, argued (ises and Aayek, the information problems facing any other form of economic organi&ation other than market capitalism would e!ceed its capacity to handle information. #hinkers within =upply)side economics built on the work of the Fustrian =chool, and particularly emphasi&e =ayHs /aw6 @supply creates its own demand.@ Capitalism, to this school, is defined by lack of state restraint on the decisions of producers. Keynesian economics
(ain article6 ;eynesian economics n his 13+ The 1eneral Theory of Employment, 4nterest and %oney, the ritish economist 5ohn (aynard ;eynes argued that capitalism suffered a basic problem in its ability to recover from periods of slowdowns in investment. ;eynes argued that a capitalist economy could remain in an indefinite e
therefore raised the prospect that the reat 9epression would not end without what he termed in the 1eneral Theory @a somewhat comprehensive sociali&ation of investment.@ ;eynesian economics challenged the notion that laissez-faire capitalist economics could operate well on their own, without state intervention used to promote aggregate demand, fighting high unemployment and deflation of the sort seen during the 130s. Ae and his followers recommended @ pump)priming@ the economy to avoid recession6 cutting ta!es, increasing government borrowing, and spending during an economic down)turn. #his was to be accompanied by trying to control wages nationally partly through the use of inflation to cut real wages and to deter people from holding money.[$] 5ohn (aynard ;eynes tried to provide solutions to many of (ar!Hs problems without completely abandoning the classical understanding of capitalism. Ais work attempted to show that regulation can be effective, and that economic stabili&ers can rein in the aggressive e!pansions and recessions that (ar! disliked. #hese changes sought to create more stability in the business cycle, and reduce the abuses of laborers. ;eynesian economists argue that ;eynesian policies were one of the primary reasons capitalism was able to recover following the reat 9epression.[*] #he premises of ;eynesHs work have, however, since been challenged by neoclassical and supply)side economics and the Fustrian =chool. Fnother challenge to ;eynesian thinking came from his colleague 4iero =raffa, and subse
(ain article6 :eoclassical economics #oday, the maEority of academic research on capitalism in the %nglish)speaking world draws on neoclassical economic thought. t favors e!tensive market coordination and relatively neutral patterns of governmental market regulation aimed at maintaining property rights' deregulated labor markets' corporate governance dominated by financial owners of firms' and financial systems depending chiefly on capital market)based financing rather than state financing. (ilton riedman took many of the basic principles set forth by Fdam =mith and the classical economists and gave them a new twist. Jne e!ample of this is his article in the =eptember 1+0 issue of The .e/ 5or( Times (aga&ine, where he argues that the social responsibility of business is @to use its resources and engage in activities designed to increase its profits ... >through? open and free competition without deception or fraud.@ #his is similar to =mithHs argument that self)interest in turn benefits the whole of society. [+] -ork like this helped lay the foundations for the coming marketi&ation >or
privati&ation? of state enterprises and the supply)side economics of Ionald Ieagan and (argaret #hatcher . #he Chicago =chool of economics is best known for its free market advocacy and monetarist ideas. Fccording to riedman and other monetarists, market economies are inherently stable if left to themselves and depressions result only from government intervention.[] riedman, for e!ample, argued that the reat 9epression was result of a contraction of the money supply, controlled by the ederal Ieserve, and not by the lack of investment as 5ohn (aynard ;eynes had argued. en ernanke, former Chairman of the ederal Ieserve, is among the economists today generally accepting riedmanHs analysis of the causes of the reat 9epression.[] :eoclassical economists, who by 1 constituted a maEority of academic economists,[100] subscribe to a subEective theory of value, according to which the value derived from consumption of a good, rather than being obEective and static, varies widely from person to person and for the same person at different times. Fdherence to a subEective theory of value compels :eoclassical thinkers to reEect the labor theory of value upheld by Fdam =mith and other classical liberal thinkers, which was grounded upon a conception of obEective value. :eoclassical models typically adopt the assumptions of (arginalism, according to which economic value results from marginal utility and marginal cost >the marginal concepts?. (arginalist theory implies that capitalists earn profits not by e!ploiting workers, but by forgoing current consumption, taking risks, and organi&ing production.
+eoclassical economic t(eory :eoclassical economics e!plain capitalism as made up of individuals, enterprises, markets and government. Fccording to their theories, individuals engage in a capitalist economy as consumers, laborers, and investors. Fs laborers, individuals may decide which Eobs to prepare for, and in which markets to look for work. Fs investors they decide how much of their income to save and how to invest their savings. #hese savings, which become investments, provide much of the money that businesses need to grow. usiness firms decide what to produce and where this production should occur. #hey also purchase inputs >materials, labor, and capital?. usinesses try to influence consumer purchase decisions through marketing and advertisement, as well as the creation of new and improved products. 9riving the capitalist economy is the search for profits >revenues minus e!penses?. #his is known as the profit motive, and it helps ensure that companies produce the goods and services that consumers desire and are able to buy. #o be profitable, firms must sell a
Fn economy grows when the total value of goods and services produced rises. #his growth re
#he price >4? of a product is determined by a balance between production at each price >supply, =? and the desires of those with purchasing power at each price >demand, 9?. #his results in a market eP? sold of the product. F rise in demand would result in an increase in price and an increase in output. =upply is the amount of a good or service produced by a firm and which is available for sale. 9emand is the amount that people are willing to buy at a specific price. 4rices tend to rise when demand e!ceeds supply, and fall when supply e!ceeds demand. n theory, the market is able to coordinate itself when a new e
group of firms that act together in a monopolistic manner to control output and raise prices. ole of go*ernment
urther information6 Competition regulator , Consumer protection and Competition law n a capitalist system, the government does not prohibit private property or prevent individuals from working where they please. #he government does not prevent firms from determining what wages they will pay and what prices they will charge for their products. (any countries, however, have minimum wage laws and minimum safety standards. Knder some versions of capitalism, the government carries out a number of economic functions, such as issuing money, supervising public utilities and enforcing private contracts. (any countries have competition laws that prohibit monopolies and cartels from forming. 9espite anti)monopoly laws, large corporations can form near)monopolies in some industries. =uch firms can temporarily drop prices and accept losses to prevent competition from entering the market, and then raise them again once the threat of entry is reduced. n many countries, public utilities >e.g. electricity, heating fuel, communications? are able to operate as a monopoly under government regulation, due to high economies of scale. overnment agencies regulate the standards of service in many industries, such as airlines and broadcasting, as well as financing a wide range of programs. n addition, the government regulates the flow of capital and uses financial tools such as the interest rate to control factors such as inflation and unemployment.[101]
-emocracy, t(e state, and legal frame.ors (ain article6 Aistory of capitalist theory )ri*ate property
#he relationship between the state, its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 1th century. Aernando de =oto is a contemporary 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.[102] Fccording to de =oto, 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. F number of (ar!ian economists have argued that the %nclosure Fcts in %ngland, 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.[103][10"]
Institutions
:ew institutional economics, a field pioneered by 9ouglass :orth, stresses the need of a legal framework in order for capitalism to function optimally, and focuses on the relationship between the historical development of capitalism and the creation and maintenance of political and economic institutions.[10$] n new institutional economics and other fields focusing on public policy, economists seek to Eudge when and whether governmental intervention >such as ta!es, welfare, and government regulation? can result in potential gains in efficiency. Fccording to regory (ankiw, a :ew ;eynesian economist, governmental intervention can improve on market outcomes under conditions of @market failure@, or situations in which the market on its own does not allocate resources efficiently.[10*] (arket failure occurs when an e!ternality is present and a market will either under) produce a product with a positive e!ternali&ation or overproduce a product that generates a negative e!ternali&ation. Fir pollution, for instance, is a negative e!ternali&ation that cannot be incorporated into markets as the worldHs air is not owned and then sold for use to polluters. =o, too much pollution could be emitted and people not involved in the production pay the cost of the pollution instead of the firm that initially emitted the air pollution. Critics of market failure theory, like Ionald Coase, Aarold 9emset&, and 5ames (. uchanan argue that government programs and policies also fall short of absolute perfection. (arket failures are often small, and government failures are sometimes large. t is therefore the case that imperfect markets are often better than imperfect governmental alternatives. -hile all nations currently have some kind of market regulations, the desirable degree of regulation is disputed. -emocracy
#he relationship between democracy and capitalism is a contentious area in theory and popular political movements. #he e!tension of universal adult male suffrage in 1th century ritain occurred along with the development of industrial capitalism, and democracy became widespread at the same time as capitalism, leading many theorists to posit a causal relationship between them, or that each affects the other. Aowever, in the 20th century, according to some authors, capitalism also accompanied a variety of political formations
=ome commentators argue that though economic growth under capitalism has led to democrati&ation in the past, it may not do so in the future, as authoritarian regimes have been able to manage economic growth without making concessions to greater political freedom.[10][10] =tates that have highly capitalistic economic systems have thrived under authoritarian or oppressive political systems. =ingapore, which maintains a highly open market economy and attracts lots of foreign investment, does not protect civil liberties such as freedom of speech and e!pression. #he private >capitalist? sector in the 4eopleHs Iepublic of China has grown e!ponentially and thrived since its inception, despite having an authoritarian government. Fugusto 4inochetHs rule in Chile led to economic growth and high levels of ineas defined by the indices? and higher scores on variables such as income and life e!pectancy, including the poor, in these nations.
Ad*ocacy for capitalism Economic gro.t(
-orldHs 94 per capita shows e!ponential growth since the beginning of the ndustrial Ievolution.[112]
Capitalism and the economy of the 4eopleHs Iepublic of China (any theorists and policymakers in predominantly capitalist nations have emphasi&ed capitalismHs ability to promote economic growth, as measured by ross 9omestic 4roduct >94?, capacity utili&ation or standard of living. #his argument was central, for
e!ample, to Fdam =mithHs advocacy of letting a free market control production and price, and allocate resources. (any theorists have noted that this increase in global 94 over time coincides with the emergence of the modern world capitalist system.[113][11"] etween 1000 and 120, the world economy grew si!fold, a faster rate than the population growth, so each individual enEoyed, on the average, a $0R increase in wealth. etween 120 and 1, world economy grew $0)fold, a much faster rate than the population growth, so each individual enEoyed, on the average, a )fold increase in wealth.[11$] n most capitalist economic regions such as %urope, the Knited =tates, Canada, Fustralia and :ew Sealand, the economy grew 1)fold per person, even though these countries already had a higher starting level, and in 5apan, which was poor in 120, the increase per person was 31)fold. n the third world there was an increase, but only $)fold per person.[11$] 4roponents argue that increasing 94 >per capita? is empirically shown to bring about improved standards of living, such as better availability of food, housing, clothing, and health care.[11*] #he decrease in the number of hours worked per week and the decreased participation of children and the elderly in the workforce have been attributed to capitalism.[11+][11] 4roponents also believe that a capitalist economy offers far more opportunities for individuals to raise their income through new professions or business ventures than do other economic forms. #o their thinking, this potential is much greater than in either traditional feudal or tribal societies or in socialist societies. )olitical freedom
n his book The oad to +erfdom, reidrich Aayek asserts that the economic freedom of capitalism is a re
Fustrian =chool economists have argued that capitalism can organi&e itself into a comple! system without an e!ternal guidance or central planning mechanism. riedrich Aayek considered the phenomenon of self)organi&ation as underpinning capitalism. 4rices serve as a signal as to the urgent and unfilled wants of people, and the opportunity to earn profits if successful, or absorb losses if resources are used poorly or left idle, gives entrepreneurs incentive to use their knowledge and resources to satisfy those wants. #hus the activities of millions of people, each seeking his own interest, are coordinated. [12"]
Criticism (ain article6 Criticism of capitalism Critics of capitalism associate the economic system with social ineand government by oligarchy?' imperialism' counter)revolutionary wars' various forms of economic and cultural e!ploitation' materialism' repression of workers and trade unionists' social alienation' economic ine
(any aspects of capitalism have come under attack from the anti)globali&ation movement, which is primarily opposed to corporate capitalism. %nvironmentalists have argued that capitalism re
“
=ome people continue to defend trickle)down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater Eustice and inclusiveness in the world. #his opinion, which has never been confirmed by the facts, e!presses a crude and naive trust in the goodness of those wielding economic power and in the sacrali&ed workings of the prevailing economic system. (eanwhile, the e!cluded are still waiting.[1"0]
”
%ee also • • • • • • • • • •
Fnti)capitalism Le Livre noir du capitalisme G 1 rench book >The Blac( Boo( of Capitalism? Corporatocracy Criticism of capitalism 9istributism %conomic democracy %conomics (arket socialism 4erspectives on capitalism 0arieties of Capitalism G 2001 book
eferences
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