Capitalism
Capitalism
generally refers to
- a combination of
economic practices that became institutionalized in
Europe between the
16th and
19th centuries, especially involving the formation and
trade in
ownership of
corporations (see
corporate personhood and
companies) for buying and selling goods, especially capital
goods (including
land and
labor), in a relatively free (meaning,
free from
state control)
market
- competing (and contentious)
theories that developed in the 19th century, in the context of
the
industrial revolution, and
20th century, in the context of the
Cold War, meant to justify the private ownership of
capital, to explain the operation of such markets, and to
guide the application or elimination of
government
regulation of
property and markets
- and beliefs about the advantages
of such practices.
There is much debate of how to define
capitalism. Some proponents of capitalism (like
Milton Friedman) tend to emphasise the role of efficient
free markets, which, they claim, promote
individual freedom[?] and
democracy. For many (like
Wallerstein[?]), it hinges on the elaboration of an economic
system in which
goods and services[?] are traded in
markets, and
capital goods[?] belong to non-state entities, onto a global
scale. For others (like
Marx), it is defined by the creation of a
labor market. As Marx observed (see also Belloc) capitalism is
also distinguished from other market economies with private
ownership by the concentration of the means of production in the
hands of a few.
According to Karl Marx, the treatment
of labor as a commodity led to people valuing things more according
to their price rather than their usefulness (see
commodity fetishism[?]) and to an expansion of the system of
commodities. Marx observed that some people bought commodities in
order to use them, while others bought them in order to sell
elsewhere at a profit. Much of the history of late capitalism
involves what David Harvey called the "system of flexible
accumulation" in which more and more things become commodities the
value of which is determined by their exchange rather than use. Thus
not only are pins commodities; shares of ownership in a factory that
makes pins become commodities; then options on shares become
commodities; then portions of interest rates on bonds become
commodities, and so on.
The following example introduces many
of the ideas involved in capitalism. When starting a business, the
initial owners typically provide some money (the
Capital) which is used by the business to buy or rent some means
of production. For example, a piece of land and a building may be
bought or rented, machinery may be bought, and workers (Labour)
may be hired. If more money is needed than the initial owners are
willing to provide, it is possible to borrow a limited amount of
extra money with a promise to pay it back with interest - in effect
more
capital is being rented. The business then has a degree of legal
authority, and thereby hopefully control, over a set of
factors of production (as they are called in economics). The
business can be registered as a
corporate entity, meaning that it can act as a type of virtual
person in many matters before the law (see
Companies for listing of such entities). The owners can pay
themselves some of the income derived from the business (Dividends),
sell
shares in the
company, or they can sell all of the equipment, land, and other
assets, and split the proceeds between them.
All real, traditionally capitalist
economies have had coporations working along the lines of the above
example existing in parallel with other types of organisation such
as governments, sole traders, partnerships and sometimes
cooperatives, credit unions, and other entities. It has not
always been agreed which of these organisations, or which features
of them are part of capitalism, although most often companies, or
many features of their operation, are included as part of the
definition.
Additionally, many of the
characteristics and techniques of business workings in the above
example existed before capitalism, and many have continued to be
added. So there is much room for debate. However, many people agree
that it was at the time when share trading in
corporate bodies became common and widely understood that
capitalism can be said to have begun, even though there is often
disagreement that it was the share trading itself that defines
capitalism. Such share trading first took place widely in Europe
during the 17th century and continued to develop and spread
thereafter, although the word Capitalism itself did not come into
use until the 19th century.
Shares can be seen as converting
company ownership into a commodity - the ownership rights are
divided into units (the shares) which can be easily traded. In a
similar way,
bonds can be seen as a commoditisation of debt. Other financial
instruments have come into being since the early years of capitalism
that have commoditised fluctuations in markets, future prices,
classes of items, and many other things. Inreases in communications
technologies have helped facilitate an increase in the number and
availability of financial instruments, and the ease of trading.
Under the bulk of capitalist
economies, a predominant proportion of productive capacity has
belonged to corporate bodies such as companies. Therefore, to a
large degree, authority over productive capacity has resided with
the owners of companies. Within legal limits and the financial means
available to them, the owners of each company can decide how it will
operate. This normally includes deciding the following things (among
many others):
- which land production will take
place on,
- how many people will be
employed,
- what activities employees will
do,
- which machines and tools will be
used for production.
In larger companies, authority is
usually delegated in a hierarchical system of management. When
company ownership is spread among many shareholders, the
shareholders generally have votes in the excercise of authority over
the company in proportion to the size of their share of ownership.
Importantly, the owners receive any
profits or proceeds generated by the productive capacity that they
own. The price at which ownership of productive capacity can be sold
is generally in rough proportion to the profits currently being
generated and/or expected to be generated by that productive
capacity in the future. This provides a financial incentive for
owners to excercise their authority in a way that increases the
productive capacity of what they own rather than to use it for other
purposes.
Economic Growth:
capitalist economies have shown an erratic but sustained tendency
towards economic growth defined as an increase in GDP. They have on
occasion been through near disastrous periods (such as the
Great depression), and some have argued that it has only been
government intervention that has prevented capitalist economies from
collapsing. Some of these argue that it is only government
intervention that has enabled capitalist economies to ever grow at
all, or that economic growth in capitalist economies is not due to
capitalism itself, but exists despite capitalism - perhaps due to
some other reason such as increased scientific knowledge, some form
of imperialism, or whatever. Others have argued that the natural
tendency of capitalism is to continuous growth and that government
intervention is the cause of depressions. Yet others argue that
growth, or often growth insufficiently guided by democracy, is a bad
thing. Still others argue that modern capitalism has been a disaster
because of its other effects besides the growth of GDP. Further
discussion on these points might be found in following sections.
Nevertheless, good or bad, because of or despite capitalism, it can
be seen from history that there has been a sustained tendency for
capitalist economies to grow over time.
Distribution of Wealth:
capitalist economies have shown an uneven distribution of wealth.
Typically between 0.5% and 1% of people own more than half of
productive capacity, if not half of all wealth, and can if they
desire sell it and spend the resulting money on whatever they
choose. Various studies have shown distributions with the peak in
the distribution at or near zero with fewer people owning
progressively higher wealth. Common mathematical models of such
distributions include
power-law distributions, exponential distributions, and mixtures
of the two. In these distributions some people own hundreds of
thousands, or sometimes millions of times more than average. Most
characteristics of people, such as height or weight, and it might be
surmised people's productivity, are distributed according to a bell
shaped curve with a peak at the average and few people far on either
side - for example there are no people 100,000 times as tall as
average, in fact there are none even 2 times as tall as average. If
height were distributed in the same way as wealth with the same
average height as now, most people would be under 1 meter (3 feet)
tall, but you would still see people 100 kilometers (60 miles) tall,
if you could see up that far, and the wealthiest would rise well
into space. This seems to strike many people as being unfair and/or
dysfunctional.
It is not agreed as to why capitalist
economies do not distribute wealth in a bell-shaped fashion or why
they tend to collect it in such an unequal fashion. Some argue that
collection of wealth in relatively few hands serves a function that
in the end benefits all, while others say that it is not beneficial
to anyone. Yet others argue that the cause is not enough capitalism,
or that capitalism hasn't been properly implemented yet - perhaps
ordinary people do not have practical access to all of the legal and
financial optimisation and tax minimisation techniques of the
wealthy because the tools to do so have not yet been commoditized
sufficiently, or perhaps government interferrence in markets
protects the wealthy. Others argue that capitalist economies
allocate wealth to the rich because they deserve it, or because
society requires that they have it as an incentive, or for any
number of reasons. Still others believe that the present wealth
distribution is the only possible outcome of capitalism, while
critics often claim that the uneven distribution shows capitalism to
be faulty, or immoral. Further discussion on these points might be
found in following sections. While it may be debated as to whether
capitalism causes the uneven distribution of wealth in capitalist
economies, or whether it is good or bad, it is clear that capitalist
economies do have uneven wealth distributions.
Evolving Network
Structure: capitalist economies have
large numbers of companies and people free to enter into many types
of arrangements with each other. The economy reacts to various
changes in technologies, discoveries, and other situations, by means
of companies and individuals re-assessing their arrangements with
each other. Therefore, the control mechanisms of the economy, and
the way that information flows through it, evolve over time, and are
subject to a kind of "survival of the fittest" form of selection not
unlike biological entities. Analysis of the
networks of connections and arrangements in the economy has
shown a degree of similarity to other networks such as the phone
system or the Internet.
[1] (http://www.theyrule.net/) has examples of networks
of company directors. Networks of customer links, and monetary flows
exhibit similar structures.
Some see the evolution of capitalist
economies as a positive adaptation and tendency towards improvement.
Others see it as pointless random and chaotic fluctuations.
Unknown/Unapproved
Direction of Capitalist Economies:
while there is a great deal of planning within companies and other
organisations in capitalist economies, there is no economy-wide
direction, or even any reliable prediction or knowledge of how the
economy will behave or perform more than a year into the future.
While nearly all transactions may be approved of and planned by the
people taking part, many society-wide phenomena emerging from the
transactions or markets are often not planned, predicted, or
approved or authorised by anyone.
Unemployment/Employment:
Since individuals typically earn income through finding a company
for which to work, it is possible that not all individuals will be
able to find a company that will want their labor at a given time.
This would not be such a big problem in an economy in which
individuals had access to the resources to provide for themselves,
but when ownership of the bulk of productive resources is collected
in relatively few hands, many individuals are made dependent on
employment for their well being. It is normal that all real
capitalist economies have fluctuating unemployment rates typically
between 3 and 15%. Occasionally they have reached levels of 30%, and
occasionally they have fallen to 2 or 1%, but rarely is there enough
employment for all. Some economists consider a certain level of
unemployment to be necessary for capitalist economies to function.
Marxists and others criticize
capitalism for enriching capitalists (owners of
capital) at the expense of workers without necessarily working
themselves ("the rich get richer, and the poor get poorer"), and for
the degree of control over the lives of workers enjoyed by owners.
Supporters of capitalism counter this criticism by claiming that
ownership of productive capacity provides motivation to owners to
increase productive capacity and so generally increase the average
material wealth ("we all get richer").
Marxists believe that the
capitalism allows capitalists - the owners of
capital - to exploit workers. The existence of private property
is seen as a restriction on freedom. Marxists also argue that
capitalism has inherent contradictions that will inevitably lead to
its collapse. Capitalism is seen as just one stage in the evolution
of the economy of a society.
Marxists also often argue that the
structure of capitalism necessarily leads to unjust exploitation of
workers, regardless of whether or not the political system is one of
an elected democracy or not. For this reason Marxists typically
emphasise the capitalist economic system of western countries rather
than the democratic political system. A capitalist system is an
economic system - although often associated with democratic systems,
capitalist systems have functioned well under unelected governments,
two examples being Hong Kong and Singapore.
In
China differences in terminology sometimes confuse and
complicate discussions of
Chinese economic reform. Under
Chinese Marxism[?], which is the official state ideology,
capitalism refers to a stage of history in which there is a class
system in which the proletariat is exploited by the bougeiosie. In
the official Chinese ideology, China is currently in the
primary stage of socialism[?] with
Chinese characteristics[?]. However, because of
Deng Xiaoping's dictum to
seek truth from facts[?], this view does not prevent China from
undertaking policies which in the West would be considered
capitalistic including employing wage labor, increasing unemployment
to motivate those who are still working, transforming state owned
enterprises into joint stock companies, and encouraging the growth
of the joint venture and private capitalist sectors.
J.A. Hobson, a British
liberal writing at the time of the fierce debate on imperialism
during the
Boer War, observed the spectacle of the ?Scramble for Africa?
(see
colonialism in Africa[?]) and emphasized changes in European
social structures and attitudes as well as capital flow, though his
emphasis on the latter seems to have been the most influential and
provocative. His so-called accumulation theory suggested that that
capitalism suffered from under-consumption due the rise of monopoly
capitalism and the resultant concentration of wealth in fewer hands,
which apparently gave rise to a misdistribution of purchasing power.
Logically, this argument is sound, given the huge impoverished
industrial working class then often far too poor to consume the
goods produced by an industrialized economy. His analysis of capital
flight and the rise of mammoth cartels later influenced
Lenin in his Imperialism: The Highest Stage of Capitalism, which
has become a basis for the modern neo-Marxist analysis of
imperialism.
Contemporary World-Systems theorist
Immanuel Wallerstein[?] perhaps better addresses Hobson's
counterarguments without degrading Hobson's underlying inferences.
Wallerstein's conception of imperialism as a part of a general,
gradual extension of capital investment from the center of the
industrial countries to an overseas periphery thus coincides with
Hobson?s. According to Wallerstein,
Mercantilism became the major tool of semi-peripheral,
newly industrialized countries such as Germany, France, Italy,
and Belgium. Wallerstein hence perceives formal empire as performing
a function ?analogous to that of the mercantilist drives of the late
seventeenth and eighteenth centuries in England and France.? The
expansion of the Industrial Revolution hence contributed to the
emergence of an era of aggressive national rivalry, leading to the
late nineteenth century
scramble for Africa and formal empire.
As with many common words, and most
particularly ideologically laden words, "capitalism" has many
meanings. There can be great confusion amongst these meanings, and
readers must be careful of which meaning a writer intends in any
particular usage.
"Capitalism" as a phenomenon (the
system of the private ownership of capital goods) is certainly
different from "capitalism" as an ideology (the philosophical
advocacy of that system). Moreover, the precise ideology meant by
"capitalism" in the latter sense differs: what a Marxist or Green
may describe as capitalist ideology may seem thoroughly alien to
what a classical liberal means by calling himself a capitalist, and
vice versa.
Opponents of capitalism sometimes
deny that these represent subtantially different things, or say they
go hand-in-hand. This criticism is often founded upon the Marxist
idea that ideology is largely a consequence of underlying economic
realities -- or the simplification thereof which holds that people
favor ideologies which justify their behavior or privilege.
Although it is arguable whether these
meanings the word "capitalism" of the same kind are somehow
"equivalent" under someone's subjective notion of equivalence, for
the sake of not making a
straw man argument when accusing someone else to be a proponent
of capitalism, these different concepts must be clearly
distinguished.
Some political ideologies favor
capitalism:
-
Libertarianism,
sometimes also called
classical liberalism, defends a capitalist
free market with minimal state intervention.
Minarchist libertarians see the role for government in the
economy as solely defending the rights of the participants
against violence, theft, fraud, and damages such as pollution.
Anarcho-capitalists see no role for government whatsoever.
-
Conservatism
varies depending on countries in its specific stances. In
Western nations, conservatives often defend the status quo of
capitalist practices. See also
political conservatism.
-
Mercantilism
defends a mostly free market within the nation, but proposes
state intervention to protect domestic commerce and industries
against foreign competition. See also
protectionism, and in opposition,
free trade.
Some ideologies favor a mixed economy
with capitalist and state-run elements:
-
Social democracy
and
new liberalism argue for extensive state regulation
and partial intervention in an otherwise capitalist economy.
Social democrats occupy a position between socialists and
classical liberals with regards to economic matters. They see a
need for government to regulate employment, trade, and labor,
and sometimes favor nationalization of certain industries. See
also
welfare state,
political liberalism.
-
Distributism
desires a economy with private property and with almost all
people possessing a means of production. This would take place
in for example a country of sustenance farmers. In a
distributist economy, laws would be made to restrict larger
corperations from taking over. Distributists favor achieving
these goals not primarily through government regulation, but
firstly through grass roots efforts and collaberation.
-
Fascism
established a state-controlled economy with powers delegated to
capitalist interests subservient to the central government.
Socialists sometimes describe modern capitalism as "fascist",
meaning an analogy to historical fascism with its cooperation
(or cronyism) between industry and government.
Some ideologies oppose capitalism and
support a collectively run economy:
-
Socialism
argues for greater state control of the economy than under
social democracy. Areas of capitalism or
private ownership[?] may remain in certain sectors (such as
small businesses[?]) under socialism, but industry and labor
are regulated by the state for the benefit of the populace at
large.
-
Communism is a
variant of socialism which calls for the overthrow of the
capitalist system and the establishment of public ownership of
the means of production. Communists see socialism as a stage
towards the establishment of a stateless and classless economy.
Historical
Soviet Communism, a system of Party-controlled socialism, is
distinct from the Communist ideal.
-
Libertarian socialism
or left anarchism argues for collective control
of the economy without the need for a State.
Since there are so many divergent
ideologies backing or fighting capitalism, there is no possible
agreed upon argument list for or against it. Each of the above
ideologies makes very different claims for or about capitalism. Some
ideologies refuse to use the word at all.
There seem to be four separate and
distinct questions about capitalism which have clearly survived the
20th century and remain hotly debated today. Certain thinkers
claim or claimed to have simple answers to these questions, but
political science generally sees them as scales or shades of
grey:
Is capitalism moral? Does it actually
encourage traits we find useful or appealing in human beings? Yes:
Ludwig von Mises,
Ayn Rand,
Robin Hanson[?] No:
John McMurty[?],
Karl Marx
Is capitalism ethical? Can its rules
and contracts and enforcement systems be made wholly objective of
the people administering them, to a greater degree than other
systems? Yes:
Buckminster Fuller,
John McMurty[?],
Friedrich Hayek No:
Karl Marx,
Peter Kropotkin
Is capitalism efficient? Given
whatever moral purposes or ethical standards it might serve, can it
be said to allocate energy, material resources, or human creativity
better than any of the alternatives? Yes:
Ludwig von Mises,
Paul Hawken,
Joseph Schumpeter No:
Peter Kropotkin
Is capitalism sustainable? Can it
persist as a means of organizing human affairs, under any
conceivable set of reforms as per the above? Yes:
Buckminster Fuller,
Paul Hawken No:
Joseph Schumpeter,
Karl Marx
It's hard to answer this objectively.
Apparently there has never been a clear agreement about the
linguistic, economic, ethical and moral implications, that is,
the "political
economy" of capitalism itself.
Rather like a governing political
party that everyone seeks to control, regardless of ideology, the
definition of "capitalism" at any given time tends to reflect the
current conflicts between interest groups.
The non-obvious combinations
demonstrate the complexity of the debate. For instance,
Joseph Schumpeter claimed in 1962 that capitalism was more
efficient than any alternative, but doomed due to its complex and
abstract rationale which the ordinary citizen would not ultimately
defend.
Also, the overlapping claims confuse
most debaters.
Ayn Rand made an original defense of capitalism as a
moral code, but her arguments for its efficiency were not
original, and selected to support her moral claims.
Karl Marx believed capitalism efficient but unfair at the
administration of an immoral purpose, and thus ultimately
unsustainable.
John McMurty[?], a current commentator within the
anti-globalization movement, believes it has become increasingly
fair at the administration of this immoral purpose.
Robin Hanson[?], another current commentator, asks if fitness
and fairness and morality can ever really be separated by other than
electoral political means?
Finally, the arguments appeal
strongly to different interest groups, and often support their
positions as "rights".
Currently recognized property owners,
especially corporate shareholders and holders of deeds in land or
rights to exploit
natural capital, are generally recognized as advocating
extremely strong property rights.
However, the definition of
capital has broadened in recent years to recognize and include
the rationales of other major interest groups: artists or other
creators who rely on
copyright law, legal patent and trademark holders who improve
what they call
intellectual capital, workers who are largely trading in their
own less creative labor guided by a body of shared and imitative
instructional capital - the trades themselves, all have reasons
to prefer status quo property law over any given set of proposed
reforms.
Even judges, mediators or
administrators charged with fair execution of some ethical code and
the maintenance of some relationship between
human capital and
financial capital within a capitalist representative democracy,
tend to have strong self-interest reasons to argue for one view or
another - typically, that view that assigns them a meaningful role
in the capitalist economy.
Karl Marx made the strong
claim that this role actually affects their cognition, and leads
them inexorably to irreconcilable points of view, i.e. that no
agreement about capitalism was possible by "class collaboration",
and "class struggle" between these defined it. This view was
advocated by many revolutionary movements of the
20th century, but was often abandoned in practice as it seemed
to lead to "class war", endless violence between those with
irreconcilable points of view.
Today, even those parties
traditionally opposed to capitalism, e.g. the
Communist Party of China of
Mao Zedong, see some role for it in the development of their
society. Debate focuses on incentive systems, not on the overall
moral structure or ethical clarity of "capitalism".
One important modern argument is that
capitalism simply isn't a system, merely a set of questions,
challenges, and assertions regarding human behavior. Similar to
biology or
ecology and its relationship to animal behavior, made complex by
human language, culture and ideas.
Jane Jacobs and
George Lakoff argued separately that there was a
Guardian Ethic which was fundamentally related to nurturing and
protection of life, and a
Trader Ethic more related to the unique primate practice of
trade. Jacobs thought that the two were made and kept separate in
history, and that any collaboration between them was corruption,
i.e. any unifying system that claimed to make assertions regarding
both, would simply be serving itself.
Other doctrines focus narrowly on the
application of capitalist means to
natural capital (Paul
Hawken) or
individual capital (Ayn
Rand) - assuming a more general moral and legal framework which
discourages these same mechanisms when applied to non-living beings
coercively, e.g. "creative accounting" combining individual
creativity with the complex instructional base of accounting itself.
Aside from the very narrow arguments
advancing specific mechanisms, it is quite difficult or pointless to
distinguish critiques of capitalism from critiques of Western
European civilization,
colonialism or
imperialism. These arguments often recur interchangeably within
the context of the extremely complex
anti-globalization movement, which is often (but not
universally) described as "anti-capitalist".
-
Capitalism.org
- Related topics:
History of Economic Thought,
Emergence of early capitalism.
- Related words:
capitalist.
- Related ideologies:
classical liberalism (libertarianism,
minarchism,
anarcho-capitalism),
conservatism (political
conservatism),
mercantilism,
protectionism,
social democracy (welfare
state,
liberalism,
political liberalism,
liberal democracy[?]),
state interventionism[?],
state capitalism,
socialism,
fascism,
communism,
libertarian socialism.
