ownership of the means of production and their operation
for profit .[1][2][3] Characteristics central to capitalism
include private property , capital accumulation , wage labor ,
voluntary exchange , a price system , and competitive
markets. [4][5] In a capitalist market economy , decision-
making and investment is determined by the owners of
the factors of production in financial and capital markets,
and prices and the distribution of goods are mainly
determined by competition in the market. [6][7]
Economists , political economists , and historians have
adopted different perspectives in their analyses of
capitalism and have recognized various forms of it in
practice. These include laissez-faire or free market
capitalism, welfare capitalism , and state capitalism .
Different forms of capitalism feature varying degrees of
free markets, public ownership, [8] obstacles to free
competition, and state-sanctioned social policies . The
degree of competition in markets, the role of intervention
and regulation, and the scope of state ownership vary
across different models of capitalism ;[9] the extent to
which different markets are free, as well as the rules
defining private property, are matters of politics and of
policy. Most existing capitalist economies are mixed
economies , which combine elements of free markets with
state intervention, and in some cases, with economic
planning .[10]
Capitalism has existed under many forms of government ,
in many different times, places, and cultures. Following
the decline of mercantilism , mixed capitalist systems
became dominant in the Western world and continue to
spread.
Etymology
Other terms sometimes used for capitalism:
Capitalist mode of production [11]
Economic individualism [citation needed ]
Economic liberalism [12]
Free enterprise [13]
Free enterprise economy[14]
Free market [13][15]
Free market economy [14]
Laissez-faire [16]
Market economy [17]
Market liberalism [18][19]
Modified free enterprise [citation needed ]
Neoliberalism[20]
Self-regulating market [13]
Profits system [21]
The term capitalist , meaning an owner of capital , appears
earlier than the term capitalism. It dates 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.
[22][23][24] 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. [25]
The Hollandische Mercurius uses capitalists in 1633 and
1654 to refer to owners of capital. [26] In French, Étienne
Clavier referred to capitalistes in 1788, [27] six years before
its first recorded English usage by Arthur Young in his
work Travels in France (1792). [24][28] David Ricardo , in his
Principles of Political Economy and Taxation (1817),
referred to "the capitalist" many times. [29] Samuel Taylor
Coleridge, an English poet, used capitalist in his work
Table Talk (1823). [30] 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 .[24]
The initial usage of the term capitalism in its modern
sense has been attributed to Louis Blanc in 1850 ("..what i
call 'capitalism' that is to say the appropriation of capital
by some to the exclusion of others") and Pierre-Joseph
Proudhon in 1861 ("Economic and social regime in which
capital, the source of income, does not generally belong
to those who make it work through their labour."). [31] Karl
Marx and Friedrich Engels referred to the capitalistic
system .[32][33] and to the capitalist mode of production in
Das Kapital (1867). [34] 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 .
According to the Oxford English Dictionary (OED), the term
capitalism first appeared in English in 1854 in the novel
The Newcomes , by novelist William Makepeace Thackeray ,
where he meant "having ownership of capital". [35] Also
according to the OED, Carl Adolph Douai, a German-
American socialist and abolitionist , used the phrase
private capitalism in 1863.
History
Main article: History of capitalism
Capital has existed incipiently on a small scale for
centuries, [36] in the form of merchant, renting and
lending activities, and occasionally as small-scale industry
with some wage labour. Simple commodity exchange, and
consequently simple commodity production, which are
the initial basis for the growth of capital from trade, have
a very long history. The "capitalistic era" according to Karl
Marx dates from 16th century merchants and small urban
workshops. [37] Marx knew that wage labour existed on a
modest scale for centuries before capitalist industry. Early
Islam promulgated capitalist economic policies, which
migrated to Europe through trade partners from cities
such as Venice. [38] Capitalism in its modern form can be
traced to the emergence of agrarian capitalism and
mercantilism in the Renaissance .[39]
Thus for much of history, capital and commercial trade
existed, but it did not lead to industrialisation or dominate
the production process of society. That required a set of
conditions, including specific technologies of mass
production, the ability to independently and privately own
and trade in means of production, a class of workers
willing to sell their labour power for a living, a legal
framework promoting commerce, a physical infrastructure
allowing the circulation of goods on a large scale, and
security for private accumulation. Many of these
conditions do not currently exist in many Third World
countries, although there is plenty of capital and labour.
Thus, the obstacles for the development of capitalist
markets are less technical and more social, cultural and
political.
Agrarian capitalism
The economic foundations of the feudal agricultural
system began to shift substantially in 16th-century
England; the manorial system had broken down, and land
began to become concentrated in the hands of fewer
landlords with increasingly large estates. Instead of a
serf -based system of labor, workers were increasingly
employed as part of a broader and expanding money-
based economy. The system put pressure on both
landlords and tenants to increase the productivity of
agriculture to make profit; the weakened coercive power
of the aristocracy to extract peasant surpluses
encouraged them to try better methods, and the tenants
also had incentive to improve their methods, in order to
flourish in a competitive labor market . Terms of rent for
land were becoming subject to economic market forces
rather than to the previous stagnant system of custom
and feudal obligation. [40][41]
By the early 17th-century, England was a centralized state
in which much of the feudal order of Medieval Europe had
been swept away. This centralization was strengthened by
a good system of roads and by a disproportionately large
capital city, London . The capital acted as a central market
hub for the entire country, creating a very large internal
market for goods, contrasting with the fragmented feudal
holdings that prevailed in most parts of the Continent .
Mercantilism
Main article: Mercantilism
A painting of a French seaport from 1638
at the height of mercantilism .
The economic doctrine prevailing from the 16th to the
18th centuries is commonly called mercantilism .[37][42]
This period, the Age of Discovery , was associated with the
geographic exploration of the foreign lands by merchant
traders, especially from England and the Low Countries.
Mercantilism was a system of trade for profit, although
commodities were still largely produced by non-capitalist
methods. [43] Most scholars consider the era of merchant
capitalism and mercantilism as the origin of modern
capitalism, [44][45] although Karl Polanyi argued that the
hallmark of capitalism is the establishment of generalized
markets for what he called the "fictitious commodities":
land, labor, and money. Accordingly, he argued that "not
until 1834 was a competitive labor market established in
England, hence industrial capitalism as a social system
cannot be said to have existed before that date". [46]
Robert Clive after the Battle of Plassey .
The battle began East India Company rule
in India.
England began a large-scale and integrative approach to
mercantilism during the Elizabethan Era (1558–1603). A
systematic and coherent explanation of balance of trade
was made public through Thomas Mun 's argument
England's Treasure by Forraign Trade, or the Balance of our
Forraign Trade is The Rule of Our Treasure. It was written in
the 1620s and published in 1664. [47]
European merchants , backed by state controls, subsidies,
and monopolies , made most of their profits by buying and
selling goods. In the words of Francis Bacon , the purpose
of mercantilism was "the opening and well-balancing of
trade; the cherishing of manufacturers; the banishing of
idleness; the repressing of waste and excess by
sumptuary laws; the improvement and husbanding of the
soil; the regulation of prices ..." [48]
The British East India Company and the Dutch East India
Company inaugurated an expansive era of commerce and
trade. [49][50] These companies were characterized by
their colonial and expansionary powers given to them by
nation-states. [49] During this era, merchants, who had
traded under the previous stage of mercantilism, invested
capital in the East India Companies and other colonies,
seeking a return on investment .
Industrial capitalism
A Watt steam engine . The steam engine
fuelled primarily by coal propelled the
Industrial Revolution in Great Britain .[51]
In the mid-18th century, a new group of economic
theorists, led by David Hume [52] and Adam Smith ,
challenged fundamental mercantilist doctrines such as
the belief that the world's wealth remained constant and
that a state could only increase its wealth at the expense
of another state.
During the Industrial Revolution , industrialists replaced
merchants as a dominant factor 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. [42]
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.
[53] In the 1840s, Britain adopted a less protectionist
policy, with the repeal of the Corn Laws and the
Navigation Acts .[42] Britain reduced tariffs and quotas , in
line with David Ricardo's advocacy for free trade .
Modern capitalism
The gold standard
formed the financial
basis of the international
economy from 1870–
1914.
Capitalism was carried across the world by broader
processes of globalization and, by the end of the 18th
century, became the dominant global economic system, in
turn intensifying processes of economic and other
globalization. [54] Later, in the 20th century, capitalism
overcame a challenge by centrally-planned economies and
is now the encompassing system worldwide, [14][55] with
the mixed economy being its dominant form in the
industrialized Western world.
Industrialization allowed cheap production of household
items using economies of scale , while rapid population
growth created sustained demand for commodities.
Globalization in this period was decisively shaped by
18th-century imperialism .[56]
After the First and Second Opium Wars and the
completion of British conquest of India, vast populations
of these regions became ready consumers of European
exports. Also in this period, areas of sub-Saharan Africa
and the Pacific islands were incorporated into the world
system. Meanwhile, the conquest of new parts of the
globe, notably sub-Saharan Africa, by Europeans yielded
valuable natural resources such as rubber, diamonds and
coal and helped fuel trade and investment between the
European imperial powers, their colonies, and the United
States.
In this period, the global financial system was mainly tied
to the gold standard . The United Kingdom first formally
adopted this standard in 1821. Soon to follow were
Canada in 1853, Newfoundland in 1865, the United States
and Germany (de jure ) in 1873. New technologies, such as
the telegraph , the transatlantic cable , the radiotelephone ,
the steamship and railway allowed goods and information
to move around the world at an unprecedented degree.
[58]
The New York stock exchange traders'
floor (1963)
In the period following the global depression of the 1930s,
the state played an increasingly prominent role in the
capitalistic system throughout much of the world. The
postwar boom ended in the late 1960s and early 1970s,
and the situation was worsened by the rise of stagflation.
[59] Monetarism , a modification of Keynesianism that is
more compatible with laissez-faire, gained increasing
prominence in the capitalist world, especially under the
leadership of Ronald Reagan 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". [60]
Relationship to democracy
Many analysts[who? ] assert that China is
one of the main examples of state
capitalism in the 21st century.
The relationship between democracy and capitalism is a
contentious area in theory and in 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 capitalists to posit a causal or mutual relationship
between them. [61] 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. [42] Democratic
peace theory asserts that democracies seldom fight other
democracies, but critics of that theory suggest that this
may be because of political similarity or stability rather
than because they are democratic or capitalist.
Moderate critics argue that though economic growth
under capitalism has led to democracy in the past, it may
not do so in the future, as authoritarian regimes have
been able to manage economic growth without making
concessions to greater political freedom. [62][63]
States with capitalistic economic systems have thrived
under political regimes deemed to be authoritarian or
oppressive. Singapore has a successful open market
economy as a result of its competitive, business-friendly
climate and robust rule of law; nonetheless, it often
comes under fire for (1) its brand of government, which,
though democratic and consistently one of the least
corrupt, [64] operates largely under a one-party rule, and
(2) not vigorously defending freedom of expression, given
its government-regulated press, as well as penchant for
upholding laws protecting ethnic and religious harmony,
judicial dignity and personal reputation. The private
(capitalist) sector in the People's Republic of China has
grown exponentially and thrived since its inception,
despite having an authoritarian government. Augusto
Pinochet 's rule in Chile led to economic growth and high
levels of inequality [65] by using authoritarian means to
create a safe environment for investment and capitalism.
In Capital in the Twenty-First Century , Thomas Piketty of
the Paris School of Economics asserts that inequality is
the inevitable consequence of economic growth in a
capitalist economy and the resulting concentration of
wealth can destabilize democratic societies and
undermine the ideals of social justice upon which they are
built. [66] Marxists , anarchists (except for anarcho-
capitalists ), and other leftists argue that capitalism is
incompatible with democracy since capitalism according
to Marx entails "dictatorship of the bourgeoisie" (owners
of the means of production) while democracy entails rule
by the people.
Characteristics
Capitalism is "production for exchange" driven by the
desire for personal accumulation of money receipts in
such exchanges, mediated by free markets. The markets
themselves are driven by the needs and wants of
consumers and those of society as a whole. If these
wants and needs were (in the socialist or communist
society envisioned by Marx, Engels and others) the driving
force, it would be " production for use ". Contemporary
mainstream economics, particularly that associated with
the right , holds that an " invisible hand ", [67] through little
more than the freedom of the market, is able to match
social production to these needs and desires. [68]
Summary
In general, capitalism as an economic system and mode
of production can be summarised by the following: [69]
Capital accumulation :[70] Production for profit and
accumulation as the implicit purpose of all or most of
production, constriction or elimination of production
formerly carried out on a common social or private
household basis. [68]
Commodity production : Production for exchange on a
market; to maximise exchange-value instead of use-value .
Private ownership of the means of production: [9]
High levels of wage labour .[71]
The investment of money to make a profit. [72]
The use of the price mechanism to allocate resources
between competing uses. [9]
The market
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.
In free-market and laissez-faire forms of capitalism,
markets are used most extensively with minimal or no
regulation over the pricing mechanism. In mixed
economies, which are almost universal today, [73] 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, fund defense and public safety or for other
reasons. 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.
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.
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.
Profit motive
The profit motive is a theory in capitalism which posits
that the ultimate goal of a business is to make money.
Stated differently, the reason for a business's existence is
to turn a profit. The profit motive functions on the rational
choice theory , or the theory that individuals tend to pursue
what is in their own best interests. Accordingly,
businesses seek to benefit themselves and/or their
shareholders by maximising profits.
In capitalist theoretics, the profit motive is said to ensure
that resources are being allocated efficiently. For instance,
Austrian economist Henry Hazlitt explains: “If there is no
profit in making an article, it is a sign that the labor and
capital devoted to its production are misdirected: the value
of the resources that must be used up in making the
article is greater than the value of the article itself." [74] In
other words, profits let companies know whether an item
is worth producing. Theoretically in free and competitive
markets, maximising profits ensures that resources are
not wasted.
No comments:
Post a Comment