Capitalism

From Wikipedia, the free encyclopedia

Capitalism is an economic system in which trade, industry and the means of production are controlled by private
owners with the goal of making profits in a market economy.
[1][2]
Central characteristics of capitalism include
capital accumulation, competitive markets and wage labor.
[3]
In a capitalist economy, the parties to a transaction
typically determine the prices at which assets, goods, and services are exchanged.
[4]
The degree of competition, role of intervention and regulation, and scope of public ownership varies across different
models of capitalism.
[5]
Economists, political economists, and historians have taken different perspectives in their
analysis of capitalism and recognized various forms of it in practice. These include laissez-faire capitalism, welfare
capitalism and state capitalism; each highlighting varying degrees of dependency on markets, public ownership, and
inclusion of social policies. The extent to which different markets are free, as well as the rules defining private
property, is a matter of politics and policy. Many states have what are termed capitalist mixed economies, referring
to a mix between planned and market-driven elements.
[6]
A pejorative characterization, crony capitalism, refers to
a state of affairs in which insider corruption, nepotism and cartels dominate the system. This is considered to be the
normal state of mature capitalism in Marxian economics.
Capitalism has existed under many forms of government, in many different times, places, and cultures.
[7]
Following
the demise of feudalism, capitalism became the dominant economic system in the Western world. Later, in the 20th
century, capitalism overcame a challenge by centrally-planned economies and is now the dominant system
worldwide,
[8][9]
with the mixed economy being its dominant form in the industrialized Western world.
Different economic perspectives emphasize specific elements of capitalism in their preferred definition. Laissez-
faire and liberal economists emphasize the degree to which government does not have control over markets and
the importance of property rights.
[10][11]
Neoclassical and Keynesian macro-economists emphasize the need for
government regulation to prevent monopolies and to soften the effects of the boom and bust cycle.
[12]
Marxian
economists emphasize the role of capital accumulation, exploitation and wage labour. Most political economists
emphasize private property as well, in addition to power relations, wage labour, class, and the uniqueness of
capitalism as a historical formation.
[6]
Proponents of capitalism argue that it creates more prosperity than any other economic system, and that its benefits
are mainly to the ordinary person.
[13]
Critics of capitalism variously associate it with economic instability
[14]
and an
inability to provide for the well-being of all people.
[15]
In contrast to both perspectives, socialists maintain that
capitalism is superior to all previously existing economic systems (such as feudalism or slavery) but that a new form
of economic organization, superior to capitalism, is possible or likely to emerge in the near future.
[16]
The term capitalism, in its modern sense, is often attributed to Karl Marx.
[7][17]
In his magnum opus Capital,
Marx wrote of the "capitalist mode of production" and revealed its laws of functioning using a method of
understanding today known as Marxism. However, Marx rarely used the term "capitalism", although it was used
twice in the more political interpretations of his work, which were primarily authored by his collaborator Friedrich
Engels. In the 20th century defenders of the capitalist system often replaced the term capitalism with phrases such
as free enterprise and private enterprise and replaced capitalist with rentier and investor in reaction to the
negative connotations associated with capitalism.
[18]
Contents
1 Economic elements
1.1 Money, capital, and accumulation
1.2 Capital and financial markets
1.3 Wage labor and class structure
1.4 Macroeconomics
2 Types of capitalism
2.1 Mercantilism
2.2 Free-market capitalism
2.3 Social-market economy
2.4 State capitalism
2.5 Corporate capitalism
2.6 Mixed economy
2.7 Other
3 Etymology and early usage
4 History
4.1 Mercantilism
4.2 Industrialism
4.3 Keynesianism and neoliberalism
4.4 Welfare economics
4.5 Globalization
5 Perspectives
5.1 Classical political economy
5.2 Marxist political economy
5.3 Weberian political sociology
5.4 Institutional economics
5.5 German Historical School and Austrian School
5.6 Keynesian economics
5.7 Neoclassical economics and the Chicago School
6 Neoclassical economic theory
6.1 The market
6.2 Role of government
7 Democracy, the state, and legal frameworks
7.1 Private property
7.2 Institutions
7.3 Democracy
8 Advocacy for capitalism
8.1 Economic growth
8.2 Political freedom
8.3 Self-organization
9 Criticism
10 See also
11 Notes
12 References
13 Further reading
14 External links
Economic elements
There are a number of different elements in the capitalist socio-economic system.
Capitalism is defined as a social and economic system that in which capital assets are mainly owned and controlled
by private persons, labor is purchased for money wages, capital gains accrue to private owners, and the price
mechanism is utilized to allocate capital goods between uses. The extent to which the price mechanism is used, the
degree of competitiveness, and government intervention in markets distinguish exact forms of capitalism.
[5]
There are different variations of capitalism which have different relationships to markets and the state. In free-
market and laissez-faire forms of capitalism, markets are utilized most extensively with minimal or no regulation
over the pricing mechanism. In interventionist and mixed economies, markets continue to play a dominant role but
are regulated to some extent by government in order to correct market failures, promote social welfare, conserve
natural resources, and fund defense and public safety. In 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 generally considered to be the opposite of socialism, which contrasts with all
forms of capitalism in the following ways: social ownership of the means of production, where returns on the means
of production accrue to society at large, and goods and services are produced directly for their utility (as opposed
to being produced by profit-seeking businesses).
Money, capital, and accumulation
Money is primarily a standardized medium of exchange, and final means of payment, that serves to measure the
value of all goods and commodities in a standard of value. It is an abstraction of economic value and medium of
exchange that eliminates the cumbersome system of barter by separating the transactions involved in the exchange
of products, thus greatly facilitating specialization and trade through encouraging the exchange of commodities.
Capitalism involves the further abstraction of money into other exchangeable assets and the accumulation of money
through ownership, exchange, interest and various other financial instruments.
The 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 realize 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 and financial markets
The defining feature of capitalist markets, in contrast to markets and exchange in pre-capitalist societies like
feudalism, is the existence of a market for capital goods (the means of production), meaning exchange-relations
(business relationships) exist within the production process. Additionally, capitalism features a market for labor.
This distinguishes the capitalist market from pre-capitalist societies which generally only contained market exchange
for final goods and secondary goods. The "market" in capitalism refers to capital markets and financial markets.
Thus, there are three main markets in a typical capitalistic economy: labor, goods and services, and financial.
Wage labor and class structure
Wage 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.
Individuals who possess and supply financial capital to productive ventures become owners, either jointly (as
shareholders) or individually. In Marxian 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 to an employer of producers, and eventually came to refer to owners of
the means of production.
[18]
The term capitalist is not generally used by supporters of mainstream economics.
"Workers" includes those who expend 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.
Labor includes all physical and mental human resources, including entrepreneurial capacity and management skills,
which are needed to produce products and services. Production is the act of making goods or services by applying
labor power.
[19][20]
Macroeconomics
Macroeconomics keeps its eyes on things such as inflation: a general increase in prices and fall in the purchasing
value of money; growth: how much money a government has and how quickly it accrues money; unemployment,
and rates of trade between other countries. Whereas microeconomics deals with individual firms, people, and other
institutions that work within a set frame work of rules to balance prices and the workings of a singular government.
Both micro and macroeconomics work together to form a single set of evolving rules and regulations. Governments
(the macroeconomic side) set both national and international regulations that keep track of prices and corporations'
(microeconomics) growth rates, set prices, and trade, while the corporations influence what federal laws are
set.
[21][22][23]
Types of capitalism
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 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. The major forms of capitalism are
listed below:
Mercantilism
Main articles: Mercantilism and Protectionism
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 to state-interest and imperialism, and
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 (Britain, France, etc.). Mercantilism 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 Primitive
accumulation of capital.
Free-market capitalism
See also: Free market and Laissez-faire
Free-market capitalism refers to an 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 equilibrium without intervention by government
policy. It typically entails support for highly competitive markets, private ownership of productive enterprises.
Laissez-faire is a more extensive form of free-market capitalism where the role of the state is limited to protecting
property rights.
Social-market economy
Main articles: Social market and Nordic model
A 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. This model is prominent in
Western and Northern European countries, and Japan, albeit in slightly different configurations. The vast majority of
enterprises are privately owned in this economic model.
Rhine capitalism refers to the contemporary model of capitalism and adaptation of the social market model that
exists in continental Western Europe today.
State capitalism
Main article: State capitalism
State capitalism consists of state ownership of the means of production within a state, and the organization of state
enterprises as commercial, profit-seeking businesses. The debate between proponents of private versus state
capitalism is centered around questions of managerial efficacy, productive efficiency, and fair distribution of wealth.
According to Aldo Musacchio, a professor at Harvard Business School, it is a system in which governments,
whether democratic or autocratic, exercise a widespread influence on the economy, through either direct ownership
or various subsidies. Musacchio also emphasizes the difference between today's state capitalism and its
predecessors. Gone are the days when governments appointed bureaucrats to run companies. The world's largest
state-owned enterprises are traded on the public markets and kept in good health by large institutional investors.
[24]
Corporate capitalism
Main article: Corporate capitalism
Other terms sometimes used
for capitalism:
Capitalist mode of
production
Economic liberalism
[25]
Free-enterprise
economy
[8][26]
Free market
[26][27]
Laissez-faire economy
[28]
Market economy
[29]
See also: State monopoly capitalism and Crony capitalism
Corporate capitalism is a free or mixed-market economy characterized by the dominance of hierarchical,
bureaucratic corporations. State-monopoly capitalism was originally a Marxist concept referring to a form of
corporate capitalism in which state policy is utilized to benefit and promote the interests of dominant or established
corporations by shielding them from competitive pressures or by providing them with subsidies.
[citation needed]
Mixed economy
Main article: Mixed economy
See also: Economic interventionism
A mixed 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. The degree of intervention in markets varies among different
countries. Some mixed economies, such as France under dirigisme, also featured a degree of indirect economic
planning over a largely capitalist-based economy.
Most capitalist economies are defined as "mixed economies" to some degree.
[citation needed]
Other
Other variants of capitalism include:
Anarcho-capitalism
Crony capitalism
Finance capitalism
Financial capitalism
Late capitalism
Neo-capitalism
Post-capitalism
Technocapitalism
Welfare capitalism
Etymology and early usage
The 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-17th century. Capitalist is
derived from capital, which evolved from capitale, a late Latin word based
on caput, meaning "head" 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.
[33][34][35]
By 1283
it was used in the sense of the capital assets of a trading firm. It was frequently
interchanged with a number of other words wealth, money, funds, goods,
assets, property, and so on.
[33]
The Hollandische Mercurius uses capitalists in 1633 and 1654 to refer to
owners of capital.
[33]
In French, tienne Clavier referred to capitalistes in
1788,
[36]
six years before its first recorded English usage by Arthur Young in
Market liberalism
[30][31]
Self-regulating market
[26]
Profits system
[32]
his work Travels in France (1792).
[35][37]
David Ricardo, in his Principles
of Political Economy and Taxation (1817), referred to "the capitalist" many
times.
[38]
Samuel Taylor Coleridge, an English poet, used capitalist in his
work Table Talk (1823).
[39]
Pierre-Joseph Proudhon used the term
capitalist in his first work, What is Property? (1840) to refer to the owners
of capital. Benjamin Disraeli used the term capitalist in his 1845 work
Sybil.
[35]
Karl Marx and Friedrich Engels used the term capitalist (Kapitalist) in The Communist Manifesto
(1848) to refer to a private owner of capital.
According to the Oxford English Dictionary (OED), the term capitalism was first used by novelist William
Makepeace Thackeray in 1854 in The Newcomes, where he meant "having ownership of capital".
[35]
Also
according to the OED, Carl Adolph Douai, a German-American socialist and abolitionist, used the term private
capitalism in 1863.
The initial usage of the term capitalism in its modern sense has been attributed to Louis Blanc in 1850 and Pierre-
Joseph Proudhon in 1861.
[40]
Karl Marx and Friedrich Engels referred to the capitalistic system (kapitalistisches
System)
[41][42]
and to the capitalist mode of production (kapitalistische Produktionsform) in Das Kapital
(1867).
[43]
The use of the word "capitalism" in reference to an economic system appears twice in Volume I of Das
Kapital, p. 124 (German edition), and in Theories of Surplus Value, tome II, p. 493 (German edition). Marx did
not extensively use the form capitalism, but instead those of capitalist and capitalist mode of production, which
appear more than 2600 times in the trilogy Das Kapital.
Marx's 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. He believed that no legal framework was available to protect the laborers, and
so exploitation by the companies was rife.
[44]
Engels made more frequent use of the term capitalism; volumes II
and III of Das Kapital, both edited by Engels after Marx's death, contain the word "capitalism" four and three
times, respectively. The three combined volumes of Das Kapital (1867, 1885, 1894) contain the word capitalist
more than 2,600 times.
An 1877 work entitled Better Times by Hugh Gabutt and an 1884 article in the Pall Mall Gazette also used the
term capitalism.
[35]
A later use of the term capitalism to describe the production system was by the German
economist Werner Sombart, in his 1902 book The Jews and Modern Capitalism (Die Juden und das
Wirtschaftsleben). Sombart's close friend and colleague, Max Weber, also used capitalism in his 1904 book The
Protestant Ethic and the Spirit of Capitalism (Die protestantische Ethik und der Geist des Kapitalismus).
History
Main article: History of capitalism
Economic trade for profit has existed since at least the second millennium BC.
[45]
However, historians often trace
capitalism in its modern form to the mercantilism of the 16th to the 18th Centuries.
Mercantilism
Main article: Mercantilism
A painting of a French seaport from
1638 at the height of mercantilism.
The European economy between the sixteenth and eighteenth centuries is
commonly labelled as mercantilism.
[46]
This period, the Age of
Discovery, saw geographic exploration being exploited by merchant
overseas traders, especially from Russia, France, Spain, Portugal,
England and the Low Countries; the European colonization of the
Americas; and the rapid growth in overseas trade. Mercantilism involved
trade for profit, although commodities were still largely produced by non-
capitalist production methods.
[7]
While some scholars see mercantilism as the earliest stage of capitalism,
others argue that capitalism did not emerge until later. For example, Karl
Polanyi, noted that "mercantilism, with all its tendency toward
commercialization, never attacked the safeguards which protected [the]
two basic elements of productionlabor and landfrom becoming the elements of commerce"; thus mercantilist
attitudes towards economic regulation were closer to feudalist attitudes, "they disagreed only on the methods of
regulation".
Moreover, Polanyi saw the hallmark of capitalism as the establishment of generalized markets for what he referred
to as the "fictitious commodities": land, labor, and money. Accordingly, "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."
[47]
Evidence of long-distance merchant-driven trade motivated by profit exists from as early as the second millennium
BCE, with the Old Assyrian merchants.
[45]
The earliest forms of mercantilism date back to the Roman Empire and
Ancient China. When the Roman Empire expanded, the mercantilist economy expanded throughout Europe. After
the collapse of the Roman Empire, local feudal powers came to control most of the European economy, and
mercantilism collapsed there; however, mercantilism persisted in Arabia, the silk-road trade-routes continued, and
mercantilism cycled following dynasty rise and collapse in East Asia. Due to their proximity to neighboring
countries, the Arabs established trade routes to Egypt, Persia, and Byzantium. As Islam spread in the 7th century,
mercantilism spread rapidly to Spain, Portugal, Northern Africa, and Asia. Mercantilism revived in Greater Europe
in the 14th century, as mercantilism spread from Portugal and Spain.
[48]
The doctrine of bullionism, a major tenet of mercantilist theory, stressed the importance of accumulating precious
metals. Mercantilists argued that a state should export more goods than it imported so that foreigners would have to
pay the difference in precious metals. Mercantilists argued that only raw materials that could not be extracted at
home should be imported; and promoted government subsidies (such as the granting of monopolies and protective
tariffs) which mercantilists regarded as necessary to encourage home production of manufactured goods.
European merchants, backed by state controls, subsidies, and monopolies, made most of their profits from the
buying and selling of goods. In the words of Francis Bacon, mercantilism aimed at "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 ..."
[49]
Similar practices of economic regimentation had begun earlier in medieval European towns. However, under
mercantilism, given the contemporaneous rise of political absolutism, the state superseded the system of local guilds
as the regulator of the economy. During that time the guilds essentially functioned like cartels that monopolized the
quantity of craftsmen to earn above-market wages.
[50]
Robert Clive after the Battle of
Plassey. The battle began East India
Company rule in India.
A Watt steam engine. The steam
engine, fuelled primarily by coal,
propelled the Industrial Revolution in
Great Britain.
[55]
From the 18th century, the commercial stage of capitalism originated
from the start of the British East India Company (founded in 1600) and
the Dutch East India Company (founded in 1602).
[51][52]
These
companies profited from the colonial and expansionary powers given to
them by nation-states.
[51]
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.
Joseph Schumpeter predicted that nations would move away from a
capitalist model, and embrace lots of socialist ideologies similar to what is
seen in many European countries. He considered it to be the result of a
compromise or truce between capitalism and communism, but in reality
this topic is actually hotly debated and many people and nations disagree
on both sides of the political spectrum.
[53]
In his History of Economic
Analysis, Schumpeter reduced mercantilist propositions to three main concerns:
[54]
1. exchange controls
2. export monopolism
3. balance of trade
Industrialism
See also: Industrial Revolution
A new group of economic theorists, led by David Hume
[56]
and Adam
Smith, in the mid-18th century, challenged fundamental mercantilist
doctrines as the belief that the amount of 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 industrialist replaced the merchant as
a dominant actor in the capitalist system and affected the decline of the
traditional handicraft skills of artisans, guilds, and journeymen. Also
during this period, the surplus generated by the rise of commercial
agriculture encouraged increased mechanization of agriculture. Industrial
capitalism marked the development of the factory system of
manufacturing, characterized by a complex 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.
[46]
Britain also abandoned its protectionist policy, as embraced by mercantilism. In the 19th century, Richard Cobden
and John Bright, who based their beliefs on the Manchester School, initiated a movement to lower tariffs.
[57]
In the
1840s, Britain adopted a less protectionist policy, with the repeal of the Corn Laws and the Navigation Acts.
[46]
Britain reduced tariffs and quotas, in line with Adam Smith and David Ricardo's advocacy for free trade.
The New York stock exchange
traders' floor (1963)
Karl Polanyi argued that capitalism did not emerge until the progressive commodification of land, money, and labor
culminating in the establishment of a generalized labor market in Britain in the 1830s. For Polanyi, "the extension of
the market to the elements of industry land, labor and money was the inevitable consequence of the introduction
of the factory system in a commercial society."
[58]
Other sources argued that mercantilism fell after the repeal of the
Navigation Acts in 1849.
[57][59][60]
Keynesianism and neoliberalism
Main articles: Keynesianism and Neoliberalism
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.
After World War II, a broad array of new analytical tools in the social
sciences were developed to explain the social and economic trends of the
period, including the concepts of post-industrial society and the welfare
state.
[46]
This era was greatly influenced by Keynesian economic
stabilization policies. The postwar boom ended in the late 1960s and
early 1970s, and the situation was worsened by the rise of stagflation.
[61]
In particular, monetarism, a theoretical alternative to Keynesianism that is
more compatible with laissez-faire, gained increasing prominence in the capitalist world, especially under the
leadership of Ronald Reagan in the US and Margaret Thatcher in the UK in the 1980s. Public and political interest
began shifting away from the so-called collectivist concerns of Keynes's managed capitalism to a focus on individual
choice, called "remarketized capitalism."
[62]
In the eyes of many economic and political commentators, the collapse
of the Soviet Union brought further evidence of the superiority of market capitalism over planned economy.
Welfare economics
Modern welfare economics has produced a number of detailed defenses of the mixed capitalist economy based on
public ownership of infrastructure and defense of positive human rights such as housing or education. Amartya Sen
in particular, in Development as Freedom, his Nobel Prize winning work, argued that the optimal economic
system is a democratic mixed economy with a welfare state.
[63]
.
Globalization
Main article: Globalization
Although international trade has been associated with the development of capitalism for over five hundred years,
some thinkers argue that a number of trends associated with globalization have acted to increase the mobility of
people and capital since the last quarter of the 20th century, combining to circumscribe the room to maneuver of
states in choosing non-capitalist models of development. Today, these trends have bolstered the argument that
capitalism should now be viewed as a truly world system.
[46]
However, other thinkers argue that globalization, even
in its quantitative degree, is no greater now than during earlier periods of capitalist trade.
[64]
Adam Smith
Perspectives
Classical political economy
Main articles: Classical economics and Classical liberalism
The classical school of economic thought emerged in Britain in the late
18th century. The classical political economists Adam Smith, David
Ricardo, Jean-Baptiste Say, and John Stuart Mill published analyses of
the production, distribution and exchange of goods in a market that have
since formed the basis of study for most contemporary economists.
In France, 'Physiocrats' like Franois Quesnay promoted free trade
based on a conception that wealth originated from land. Quesnay's
Tableau conomique (1759), described the economy analytically and
laid the foundation of the Physiocrats' economic theory, followed by
Anne Robert Jacques Turgot who opposed tariffs and customs duties
and advocated free trade. Richard Cantillon defined long-run equilibrium
as the balance of flows of income, and argued that the supply and
demand mechanism around land influenced short-term prices.
Smith's attack on mercantilism and his reasoning for "the system of
natural liberty" in The Wealth of Nations (1776) are usually taken as the beginning of classical political economy.
Smith devised a set of concepts that remain strongly associated with capitalism today. His theories regarding the
"invisible hand" are commonly interpreted to mean individual pursuit of self-interest unintentionally producing
collective good for society. It was necessary for Smith 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.
[65]
He criticized 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. This view was shared by David Ricardo, second most
important of the classical political economists and one of the most influential economists of modern times.
[66]
In On the Principles of Political Economy and Taxation (1817), he developed the law of comparative
advantage, which explains 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. This principle supports the economic case for free trade. Ricardo
was a supporter of Say's Law and held the view that full employment is the normal equilibrium for a competitive
economy.
[67]
He also argued that inflation is closely related to changes in quantity of money and credit and was a
proponent of the law of diminishing returns, which states that each additional unit of input yields less and less
additional output.
[68]
The values of classical political economy are strongly associated with the classical liberal doctrine of minimal
government intervention in the economy, though it does not necessarily oppose the state's provision of a few basic
public goods.
[69]
Classical liberal thought has generally assumed a clear division between the economy and other
realms of social activity, such as the state.
[70]
Karl Marx
While economic liberalism favors markets unfettered by the government, it maintains that the state has a legitimate
role in providing public goods.
[71]
For instance, Adam Smith argued that the state has a role in providing roads,
canals, schools and bridges that cannot be efficiently implemented by private entities. However, he preferred that
these goods should be paid proportionally to their consumption (e.g. putting a toll). In addition, he advocated
retaliatory tariffs to bring about free trade, and copyrights and patents to encourage innovation.
[71]
Marxist political economy
Main article: Marxian economics
Karl Marx 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.
[46]
The capitalist stage of development or "bourgeois society," for Marx, represented the most advanced form of social
organization 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.
[72][73]
Following Adam Smith, Marx distinguished the use value of commodities from
their exchange value in the market. Capital, according to Marx, is created with
the purchase of commodities for the purpose of creating new commodities with
an exchange value higher than the sum of the original purchases. For Marx, the
use of labor power had itself become a commodity under capitalism; the
exchange value of labor power, as reflected in the wage, is less than the value it
produces for the capitalist.
This difference in values, he argues, constitutes surplus value, which the capitalists
extract and accumulate. In his book Capital, Marx argues that the capitalist
mode of production is distinguished by how the owners of capital extract this
surplus from workersall prior class societies had extracted surplus labor, but
capitalism was new in doing so via the sale-value of produced commodities.
[74]
He argues that a core requirement of a capitalist society is that a large portion of the population must not possess
sources of self-sustenance that would allow them to be independent, and must instead be compelled, to survive, to
sell their labor for a living wage.
[75][76][77]
In conjunction with his criticism of capitalism was Marx's belief that the working class, due to its relationship to the
means of production and numerical superiority under capitalism, would be the driving force behind the socialist
revolution.
[78]
This argument is intertwined with Marx's version of the labor theory of value arguing that labor is the
source of all value, and thus of profit.
Vladimir Lenin, in Imperialism, the Highest Stage of Capitalism (1916), further developed Marxist theory and
argued that capitalism necessarily led to monopoly capitalism and the export of capitalwhich he also called
"imperialism"to find new markets and resources, representing the last and highest stage of capitalism.
[79]
Some
20th-century Marxian economists consider capitalism to be a social formation where capitalist class processes
dominate, but are not exclusive.
[80]
Max Weber
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 utilization of labor nonetheless exist simultaneously in existing societies where
capitalist processes are predominant. However, other late Marxian thinkers argue that a social formation as a whole
may be classed as capitalist if capitalism is the mode by which a surplus is extracted, even if this surplus is not
produced by capitalist activity, as when an absolute majority of the population is engaged in non-capitalist
economic activity.
[81]
In Limits to Capital (1982), David Harvey outlines an overdetermined, "spatially restless" capitalism coupled with
the spatiality of crisis formation and resolution. Harvey used Marx's theory of crisis to aid his argument that
capitalism must have its "fixes" but that we cannot predetermine what fixes will be implemented, nor in what form
they will be. His work on contractions of capital accumulation and international movements of capitalist modes of
production and money flows has been influential.
[82]
According to Harvey, capitalism creates the conditions for
volatile and geographically uneven development
[83]
Weberian political sociology
In social science, the understanding of the defining characteristics of
capitalism has been strongly influenced by the German sociologist, Max
Weber. Weber considered market exchange, 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
rationalization of production, maximizing efficiency and productivity a
tendency embedded in a sociological process of enveloping
rationalization that formed modern legal bureaucracies in both public and
private spheres.
[84]
According to Weber, workers in pre-capitalist
economies understood work in terms of a personal relationship between master and journeyman in a guild, or
between lord and peasant in a manor.
[85]
For these developments of capitalism to emerge, Weber argued, it was necessary the development of a "capitalist
spirit"; that is, ideas and habits that favor a rational pursuit of economic gain. These 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".
[84]
In his book The Protestant Ethic and the Spirit of Capitalism (19041905), Weber
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. For Weber, the 'spirit of capitalism' was, in general, that of
ascetic Protestantism; this ideology was able to motivate extreme rationalization 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. This was sufficient, then, to create "self-mediating capital" as conceived by Marx.
This is pictured in the Protestant understanding of beruf
[86]
whose meaning encompass at the same time
profession, vocation, and calling as exemplified in Proverbs 22:29, "Seest thou a man diligent in his calling? He
shall stand before kings". In the Protestant Ethic, Weber describes the developments of this idea of calling from its
religious roots, through the understanding of someone's economic success as a sign of his salvation, until the
conception that moneymaking is, within the modern economic order, the result and the expression of diligence in
one's calling.
Thorstein Veblen
Finally, 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 acquisition, with irresistible force. Perhaps it will so determine them until the last
ton of fossilized coal is burnt" (p. 123).
[87]
This 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 Puritan "spirit" associated with
capitalism.
Institutional economics
Main article: Institutional economics
Institutional economics, once the main school of economic thought in the
United States, holds that capitalism cannot be separated from the political
and social system within which it is embedded. It emphasizes the legal
foundations of capitalism (see John R. Commons) and the evolutionary,
habituated, and volitional processes by which institutions are erected and
then changed.
One key figure in institutional economics was Thorstein Veblen who in his
book, The Theory of the Leisure Class (1899), analyzed the motivations
of wealthy people in capitalism who conspicuously consumed their riches
as a way of demonstrating success. The concept of conspicuous
consumption was in direct contradiction to the neoclassical view that
capitalism was efficient.
In The Theory of Business Enterprise (1904) Veblen 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. Output and technological advance are restricted by business practices and the creation of monopolies.
Businesses protect their existing capital investments and employ excessive credit, leading to depressions and
increasing military expenditure and war through business control of political power.
German Historical School and Austrian School
Main articles: Historical school of economics and Austrian School
From the perspective of the German Historical School, capitalism is primarily identified in terms of the organization
of production for markets. Although this perspective shares similar theoretical roots with that of Weber, its
emphasis on markets and money lends it different focus.
[46]
For followers of the German Historical School, 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.
In the late 19th century, the German Historical School of economics diverged, with the emerging Austrian School of
economics, led at the time by Carl Menger. Later generations of followers of the Austrian School continued to be
influential in Western economic thought in the early part of the 20th century.
Ludwig von Mises
John Maynard Keynes
Austrian-born economist Joseph Schumpeter, sometimes associated with the School,
[88]
emphasized the "creative
destruction" of capitalismthe fact that market economies undergo constant change. Schumpeter argued that at
any moment in time there are rising industries and declining industries. Schumpeter, and many contemporary
economists influenced by his work, argue that resources should flow from
the declining to the expanding industries for an economy to grow, but
they recognized that sometimes resources are slow to withdraw from the
declining industries because of various forms of institutional resistance to
change.
The Austrian economists Ludwig von Mises and Friedrich Hayek were
among the leading defenders of market economy against 20th century
proponents of socialist planned economies. Mises and Hayek argued that
only market capitalism could manage a complex, modern economy.
Since 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 Mises and Hayek, the information problems facing
any other form of economic organization other than market capitalism
would exceed its capacity to handle information. Thinkers within Supply-
side economics built on the work of the Austrian School, and particularly
emphasize Say's Law: "supply creates its own demand." Capitalism, to
this school, is defined by lack of state restraint on the decisions of
producers.
Keynesian economics
Main article: Keynesian economics
In his 1937 The General Theory of Employment, Interest and Money,
the British economist John Maynard Keynes argued that capitalism
suffered a basic problem in its ability to recover from periods of
slowdowns in investment. Keynes argued that a capitalist economy could
remain in an indefinite equilibrium despite high unemployment.
Essentially rejecting Say's law, he argued that some people may have a
liquidity preference that would see them rather hold money than buy new
goods or services, which therefore raised the prospect that the Great
Depression would not end without what he termed in the General
Theory "a somewhat comprehensive socialization of investment."
Keynesian 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 1930s. He and his followers
recommended "pump-priming" the economy to avoid recession: cutting
taxes, increasing government borrowing, and spending during an economic down-turn. This 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.
[89]
Milton Friedman
John Maynard Keynes tried to provide solutions to many of Marx's problems without completely abandoning the
classical understanding of capitalism. His work attempted to show that regulation can be effective, and that
economic stabilizers can rein in the aggressive expansions and recessions that Marx disliked. These changes sought
to create more stability in the business cycle, and reduce the abuses of laborers. Keynesian economists argue that
Keynesian policies were one of the primary reasons capitalism was able to recover following the Great
Depression.
[90]
The premises of Keynes's work have, however, since been challenged by neoclassical and supply-
side economics and the Austrian School.
Another challenge to Keynesian thinking came from his colleague Piero Sraffa, and subsequently from the Neo-
Ricardian school that followed Sraffa. In Sraffa's highly technical analysis, capitalism is defined by an entire system
of social relations among both producers and consumers, but with a primary emphasis on the demands of
production. According to Sraffa, the tendency of capital to seek its highest rate of profit causes a dynamic instability
in social and economic relations.
Neoclassical economics and the Chicago School
Main article: Neoclassical economics
Today, the majority of academic research on capitalism in the English-speaking world draws on neoclassical
economic thought. It favors extensive 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.
Milton Friedman took many of the basic principles set forth by Adam
Smith and the classical economists and gave them a new twist. One
example of this is his article in the September 1970 issue of The New
York Times Magazine, 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." This is similar to Smith's argument that self-interest in
turn benefits the whole of society.
[91]
Work like this helped lay the
foundations for the coming marketization (or privatization) of state
enterprises and the supply-side economics of Ronald Reagan and
Margaret Thatcher.
The Chicago School of economics is best known for its free market
advocacy and monetarist ideas. According to Friedman and other
monetarists, market economies are inherently stable if left to themselves
and depressions result only from government intervention.
[92]
Friedman, for example, argued that the Great Depression was result of a
contraction of the money supply, controlled by the Federal Reserve, and not by the lack of investment as John
Maynard Keynes had argued. Ben Bernanke, current Chairman of the Federal Reserve, is among the economists
today generally accepting Friedman's analysis of the causes of the Great Depression.
[93]
Neoclassical economists, who by 1998 constituted a majority of academic economists,
[94]
subscribe to a subjective
Neoclassical economists, who by 1998 constituted a majority of academic economists,
[94]
subscribe to a subjective
theory of value, according to which the value derived from consumption of a good, rather than being objective and
static, varies widely from person to person and for the same person at different times. Adherence to a subjective
theory of value compels Neoclassical thinkers to reject the labor theory of value , upheld by Adam Smith and other
classical liberal thinkers, which was grounded upon a conception of objective value.
Neoclassical models typically adopt the assumptions of Marginalism, according to which economic value results
from marginal utility and marginal cost (the marginal concepts). Marginalist theory implies that capitalists earn profits
not by exploiting workers, but by forgoing current consumption, taking risks, and organizing production.
Neoclassical economic theory
Neoclassical economics explain capitalism as made up of individuals, enterprises, markets and government.
According to their theories, individuals engage in a capitalist economy as consumers, laborers, and investors. As
laborers, individuals may decide which jobs to prepare for, and in which markets to look for work. As investors
they decide how much of their income to save and how to invest their savings. These savings, which become
investments, provide much of the money that businesses need to grow.
Business firms decide what to produce and where this production should occur. They also purchase inputs
(materials, labor, and capital). Businesses try to influence consumer purchase decisions through marketing and
advertisement, as well as the creation of new and improved products. Driving the capitalist economy is the search
for profits (revenues minus expenses). This 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. To be profitable, firms must sell a
quantity of their product at a certain price to yield a profit. A business may lose money if sales fall too low or if its
costs become too high. The profit motive encourages firms to operate more efficiently. By using less materials, labor
or capital, a firm can cut its production costs, which can lead to increased profits.
An economy grows when the total value of goods and services produced rises. This growth requires investment in
infrastructure, capital and other resources necessary in production. In a capitalist system, businesses decide when
and how much they want to invest.
Income in a capitalist economy depends primarily on what skills are in demand and what skills are being supplied.
Skills that are in scarce supply are worth more in the market and can attract higher incomes. Competition among
workers for jobs and among employers for skilled workers help determine wage rates. Firms need to pay
high enough wages to attract the appropriate workers; when jobs are scarce, workers may accept lower wages
than they would when jobs are plentiful. Trade union and governments influence wages in capitalist systems. Unions
act to represent their members in negotiations with employers over such things as wage rates and acceptable
working conditions.
The market
Supply is the amount of a good or service produced by a firm and which is available for sale. Demand is the amount
that people are willing to buy at a specific price. Prices tend to rise when demand exceeds supply, and fall when
supply exceeds demand. In theory, the market is able to coordinate itself when a new equilibrium price and quantity
is reached.
The price (P) of a product is determined
by a balance between production at each
price (supply, S) and the desires of those
with purchasing power at each price
(demand, D). This results in a market
equilibrium, with a given quantity (Q)
sold of the product. A rise in demand
would result in an increase in price and
an increase in output.
Competition arises when more than one producer is trying to sell the same or similar products to the same buyers.
In capitalist theory, competition leads to innovation and more affordable prices. Without competition, a monopoly
or cartel may develop. A monopoly occurs when a firm supplies the total output in the market; the firm can
therefore limit output and raise 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 raise prices.
Role of government
Further information: Competition regulator, Consumer
protection, and Competition law
In a capitalist system, the government does not prohibit private
property or prevent individuals from working where they please. The
government does not prevent firms from determining what wages they
will pay and what prices they will charge for their products. Many
countries, however, 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 from forming.
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 entry is reduced. In 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.
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 factors such as
inflation and unemployment.
[95]
Democracy, the state, and legal frameworks
Main article: History of capitalist theory
Private property
The 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 19th century. Hernando de Soto 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.
[96]
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.
[97][98]
Institutions
New institutional economics, a field pioneered by Douglass North, 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.
[99]
In new institutional economics and other
fields focusing on public policy, economists seek to judge when and whether governmental intervention (such as
taxes, welfare, and government regulation) can result in potential gains in efficiency. According to Gregory Mankiw,
a New Keynesian 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.
[100]
Market failure occurs when an externality is present and a market will either under-produce a product with a
positive externalization or overproduce a product that generates a negative externalization. Air pollution, for
instance, is a negative externalization that cannot be incorporated into markets as the world's air is not owned and
then sold for use to polluters. So, 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 Ronald Coase, Harold Demsetz, and James M. Buchanan argue that government programs and policies also
fall short of absolute perfection. Market failures are often small, and government failures are sometimes large. It is
therefore the case that imperfect markets are often better than imperfect governmental alternatives. While all nations
currently have some kind of market regulations, the desirable degree of regulation is disputed.
Democracy
The relationship between democracy and capitalism is a contentious area in theory and popular political
movements. The extension of universal 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
many theorists to posit a causal relationship between them, or that each affects the other. However, in the 20th
century, according to some authors, capitalism also accompanied a variety of political formations quite distinct from
liberal democracies, including fascist regimes, absolute monarchies, and single-party states.
[46]
While some thinkers argue that capitalist development more-or-less inevitably eventually leads to the emergence of
democracy, others dispute this claim. Research on the democratic peace theory indicates that capitalist
democracies rarely make war with one another
[101]
and have little internal violence. However, critics of the
democratic peace theory note that democratic capitalist states may fight infrequently and or never with other
democratic capitalist states because of political similarity or stability rather than because they are democratic or
capitalist.
Some commentators argue that though economic growth under capitalism has led to democratization 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.
[102][103]
States that have highly capitalistic economic systems have thrived
under authoritarian or oppressive political systems. Singapore, which maintains a highly open market economy and
attracts lots of foreign investment, does not protect civil liberties such as freedom of speech and expression. The
World's GDP per capita shows
exponential growth since the
beginning of the Industrial
Revolution.
[104]
Capitalism and the economy of the
People's Republic of China
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 rule in Chile led to economic growth by using
authoritarian means to create a safe environment for investment and capitalism.
In response to criticism of the system, some proponents of capitalism have argued that its advantages are supported
by empirical research. Indices of Economic Freedom show a correlation between nations with more economic
freedom (as defined by the indices) and higher scores on variables such as income and life expectancy, including the
poor, in these nations.
Advocacy for capitalism
Economic growth
Many theorists and policymakers in predominantly capitalist nations have
emphasized capitalism's ability to promote economic growth, as
measured by Gross Domestic Product (GDP), capacity utilization or
standard of living. This argument was central, for example, to Adam
Smith's advocacy of letting a free market control production and price,
and allocate resources. Many theorists have noted that this increase in
global GDP over time coincides with the emergence of the modern world
capitalist system.
[105][106]
Between 1000 and 1820, the world economy grew sixfold, a faster rate
than the population growth, so each individual enjoyed, on the average, a
50% increase in wealth. Between 1820 and 1998, world economy grew
50-fold, a much faster rate than the population growth, so each individual
enjoyed, on the average, a 9-fold increase in wealth.
[107]
In most
capitalist economic regions such as Europe, the United States, Canada,
Australia and New Zealand, the economy grew 19-fold per person, even
though these countries already had a higher starting level, and in Japan,
which was poor in 1820, the increase per person was 31-fold. In the
third world there was an increase, but only 5-fold per person.
[107]
Proponents argue that increasing GDP (per capita) is empirically shown
to bring about improved standards of living, such as better availability of
food, housing, clothing, and health care.
[108]
The 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.
[109][110]
Proponents 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. To their thinking, this potential is much
greater than in either traditional feudal or tribal societies or in socialist societies.
Political freedom
In his book The Road to Serfdom, Freidrich Hayek asserts that the economic freedom of capitalism is a requisite
of political freedom. He argues 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 and Ronald Reagan also promoted
this view. Friedman claimed that centralized economic operations are always accompanied by political repression.
In his view, transactions in a market economy are voluntary, and that the wide diversity that voluntary activity
permits is a fundamental threat to repressive political leaders and greatly diminish 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.
[111][112]
However the dire predictions in The Road to Serfdom have not come to pass, even though some measure of
government intervention in the economy is universal. According to neoconservative thinker Adam Wolfson, "...most
modern democracies have lived with more extensive welfare states and highly socialized economics than the United
States, without somehow reaching a 'tipping point' whereupon they tumble into totalitarianism. There is in fact no
road to serfdom through the welfare state."
[113]
The novelist Ayn Rand attempted a positive moral defense of laissez-faire capitalism, most notably in her 1957
novel Atlas Shrugged. She insisted that capitalism should be supported on moral grounds, not just on the basis of
practical benefits.
[114][115]
Her views have been ignored or rejected by mainstream academia, but she has
significantly influenced conservative and libertarian defenders of capitalism, especially in the American Tea Party
movement.
[116]
Self-organization
Austrian School economists have argued that capitalism can organize itself into a complex system without an
external guidance or central planning mechanism. Friedrich Hayek considered the phenomenon of self-organization
as underpinning capitalism. Prices 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. Thus the activities of millions of
people, each seeking his own interest, are coordinated.
[117]
Criticism
Main article: Criticism of capitalism
Critics of capitalism associate it with social inequality and unfair distribution of wealth and power; a tendency
toward market monopoly or oligopoly (and government by oligarchy); imperialism, counter-revolutionary wars and
various forms of economic and cultural exploitation; materialism; repression of workers and trade unionists; social
alienation; economic inequality; unemployment; and economic instability. Individual property rights have also been
associated with the tragedy of the anticommons.
Notable critics of capitalism have included: socialists, anarchists, communists, national socialists, social democrats,
technocrats, some types of conservatives, Luddites, Narodniks, Shakers, and some types of nationalists.
Marxists have advocated a revolutionary overthrow of capitalism that would lead to socialism, before eventually
transforming into communism. Many socialists consider capitalism to be irrational, in that production and the
direction of the economy are unplanned, creating many inconsistencies and internal contradictions.
[118]
Labor
historians and scholars such as Immanuel Wallerstein have argued that unfree labor by slaves, indentured
An Industrial Workers of the World
poster (1911)
servants, prisoners, and other coerced persons is compatible with capitalist relations.
[119]
Many aspects of capitalism have come under attack from the anti-globalization movement, which is primarily
opposed to corporate capitalism. Environmentalists have argued that capitalism requires continual economic
growth, and that it will inevitably deplete the finite natural resources of the Earth.
[120]
Many religions have criticized or opposed specific elements of capitalism. Traditional Judaism, Christianity, and
Islam forbid lending money at interest,
[121][122]
although alternative methods of banking have been developed.
Some Christians have criticized capitalism for its materialist aspects
[123]
and its inability to account for the wellbeing
of all people. Many of Jesus's parables deal with clearly economic concerns: farming, shepherding, being in debt,
doing hard labor, being excluded from banquets and the houses of the rich, and have implications for wealth and
power distribution.
[124][125]
In his 84-page apostolic exhortation Evangelii Gaudium, Pope Francis
described unfettered capitalism as "a new tyranny" and called upon world
leaders to fight rising poverty and inequality.
[126]
In it he says:

Some people continue to defend trickle-down theories

which assume that economic growth, encouraged by a
free market, will inevitably succeed in bringing about
greater justice and inclusiveness in the world. This
opinion, which has never been confirmed by the facts,
expresses a crude and naive trust in the goodness of
those wielding economic power and in the sacralized
workings of the prevailing economic system. Meanwhile,
the excluded are still waiting.
[127]

Following the banking crisis of 2007, even those who strongly held the
view that capitalism can organize itself were forced to reconsider. Alan
Greenspan told the United States Congress on October 23, 2008, "The
whole intellectual edifice collapsed. I made a mistake in presuming that
the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting
their own shareholders. ... I was shocked."
[128]
See also
Anti-capitalism
Communism
Corporatocracy
Criticisms of capitalism
Economics
Market economy
Market socialism
Perspectives on capitalism
Rhine capitalism
Socialism
Varieties of Capitalism
Notes
1. ^ "Capitalism" (http://oxforddictionaries.com/definition/english/capitalism) Oxford Dictionaries. "capitalism. an
economic and political system in which a countrys trade and industry are controlled by private owners for profit,
rather than by the state." Retrieved 4 January 2013.
2. ^ Chris Jenks. Core Sociological Dichotomies. "Capitalism, as a mode of production, is an economic system of
manufacture and exchange which is geared toward the production and sale of commodities within a market for
profit, where the manufacture of commodities consists of the use of the formally free labour of workers in
exchange for a wage to create commodities in which the manufacturer extracts surplus value from the labour of
the workers in terms of the difference between the wages paid to the worker and the value of the commodity
produced by him/her to generate that profit." London, England, UK; Thousand Oaks, California, USA; New Delhi,
India: SAGE. p. 383.
3. ^ Heilbroner, Robert L. "capitalism." (http://www.dictionaryofeconomics.com/article?id=pde2008_C000053)
Durlauf, Steven N.and Lawrence E. Blume, eds., The New Palgrave Dictionary of Economics. 2nd ed. (Palgrave
Macmillan, 2008) doi:10.1057/9780230226203.0198 (http://dx.doi.org/10.1057%2F9780230226203.0198)
4. ^ http://www.merriam-webster.com/dictionary/capitalism "an economic system characterized by private or
corporate ownership of capital goods, by investments that are determined by private decision, and by prices,
production, and the distribution of goods that are determined mainly by competition in a free market"
5. ^
a

b
Macmillan Dictionary of Modern Economics, 3rd Ed., 1986, p. 54.
6. ^
a

b
Stilwell, Frank. "Political Economy: the Contest of Economic Ideas." First Edition. Oxford University Press.
Melbourne, Australia. 2002.
7. ^
a

b

c
Scott, John (2005). Industrialism: A Dictionary of Sociology. Oxford University Press.
8. ^
a

b
Capitalism. Encyclopdia Britannica. 2006.
9. ^ James Fulcher, Capitalism, A Very Short Introduction, "In one respect there can, however, be little doubt that
capitalism has gone global and that is in the elimination of alternative systems." p. 99, Oxford University Press,
2004, ISBN 978-0-19-280218-7.
10. ^ Tucker, Irvin B. (1997). Macroeconomics for Today. p. 553.
11. ^ Case, Karl E. (2004). Principles of Macroeconomics. Prentice Hall.
12. ^ Fulcher, James (2004). Capitalism A Very Short Introduction. Oxford University Press. p. 41.
13. ^ Friedman, Milton. Capitalism and Freedom. [Chicago]: University of Chicago, 1962.
14. ^ Krugman, Paul, Wells, Robin, Economics, Worth Publishers, New York, (2006)
15. ^ Caritas in veritate paragraph 36 (http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-
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References
Bacher, Christian (2007). Capitalism, Ethics and the Paradoxon of Self-Exploitation
(http://books.google.co.uk/books?id=w_6PqBp64y0C&lpg=PP1&pg=PA2). Munich: GRIN Verlag. p. 2.
ISBN 978-3-638-63658-2.
De George, Richard T. (1986). Business Ethics. New York: Macmillan. p. 104. ISBN 978-0-02-328010-8.
Fulcher, James (2004). Capitalism A Very Short Introduction. Oxford: Oxford University Press. ISBN 978-0-19-
280218-7.
Lash, Scott; Urry, John (2000). "Capitalism". In Abercrombie, Nicholas; Hill, Stephen; Turner, Bryan S. The
Penguin Dictionary of Sociology (4th ed.). London: Penguin Books. pp. 3640. ISBN 978-0-14-051380-6.
McCraw, Thomas K. (August 2011). "The Current Crisis and the Essence of Capitalism"
(http://www.themontrealreview.com/2009/The-current-crisis-and-the-essence-of-capitalism.php). The Montreal
Review. ISSN 0707-9656 (//www.worldcat.org/issn/0707-9656).
Obrinsky, Mark (1983). Profit Theory and Capitalism (http://www.questia.com/read/4995070/profit-theory-and-
capitalism). Philadelphia: University of Pennsylvania Press via Questia (subscription required). p. 1. ISBN 978-0-
8122-7863-7.
Wolf, Eric R. (1982). Europe and the People Without History. Berkeley: University of California Press. ISBN 978-
0-520-04459-3.
Wood, Ellen Meiksins (2002). The Origin of Capitalism: A Longer View (http://books.google.co.uk/books?
id=FZPyKjVguVoC). London: Verso. ISBN 978-1-85984-392-5.
Further reading
Block, Fred; Somers, Margaret R. (2014). The Power of Market Fundamentalism: Karl Polyani's Critique.
Cambridge, MA: Harvard University Press. ISBN 978-0-674-05071-6.
Musacchio, Aldo; Lazzarini, Sergio G. (2014). Reinventing State Capitalism: Leviathan in Business, Brazil and
Beyond. Cambridge, MA: Harvard University Press. ISBN 978-0-674-72968-1.
Panitch, Leo, and Sam Gindin (2012). The Making of Global Capitalism: the Political Economy of American
Empire. London: Verso. ISBN 978-1-84467-742-9
Piketty, Thomas (2014). Capital in the Twenty-First Century. Cambridge, MA: Belknap Press. ISBN 978-0-674-
43000-6.
Roberts, Paul Craig (2013). The Failure of Laissez-faire Capitalism: towards a New Economics for a Full World.
Atlanta, Ga.: Clarity Press. ISBN 978-0-9860362-5-5
External links
Capitalism (http://www.bbc.co.uk/programmes/p00545kv) on In Our Time at the BBC. (listen now
(http://www.bbc.co.uk/iplayer/console/p00545kv/In_Our_Time_Capitalism))
Hessen, Robert (2008). Capitalism (http://www.econlib.org/library/Enc/Capitalism.html). The Concise
Encyclopedia of Economics (2nd ed.). Library of Economics and Liberty. ISBN 978-0865976658.
OCLC 237794267 (//www.worldcat.org/oclc/237794267).
Center on Capitalism and Society (http://capitalism.columbia.edu/) at Columbia University
Center for the Study of Capitalism (http://capitalism.wfu.edu/) at Wake Forest University
Commonwealth Club of California-Dr. Yaron Brook and Dr. David Callahan: Is Capitalism Moral? A
Debate October 22, 2012 (http://www.commonwealthclub.org/events/archive/podcast/dr-yaron-brook-
and-dr-david-callahan-capitalism-moral-debate-102212)
Basic Characteristics of Capitalism from textbooksfree.org
(http://www.textbooksfree.org/Economics_3_Basic_Characteristics_of_Capitalism.htm)
Retrieved from "http://en.wikipedia.org/w/index.php?title=Capitalism&oldid=583575898"
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