Capitalism: Difference between revisions - Wikipedia

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{{Capitalism}}

{{Individualism sidebar}}

'''Capitalism''' typically refers to an [[Economic system|economic]] and [[social system]] in which the [[means of production]] (also known as [[Capital (economics)|capital]]) are [[Private property|privately controlled]]; [[labor]], goods and capital are [[trade]]d in a [[market]]; [[Profit (economics)|profits]] are distributed to owners or invested in new [[technology|technologies]] and [[industry|industries]]; and wages are paid to labor.

The extent to which different markets are free, as well as rules determining what may and may not be private property, is a matter of [[politics]] and [[policy]] and many states have what are termed "mixed economies."<ref name="Stilwell">Stilwell, Frank. “Political Economy: the Contest of Economic Ideas.” First Edition. Oxford University Press. Melbourne, Australia. 2002.</ref> Scholars in the social sciences, including historians, economic sociologists, economists, anthropologists and philosophers have debated over how to define capitalism, however there is little controversy that private ownership of the means production, creation of goods of services for profit in a market, and paid employment are elements of capitalism.<ref>Tormey, Simon. Anti-Capitalism. OneWorld Publications, 2004. p. 10</ref>

Capitalism as a system developed incrementally from the 16th century in [[Europe]], although some features of capitalist organization existed in the [[Ancient history|ancient world]], and early aspects of [[merchant capitalism]] flourished during the [[Late Middle Ages]].<ref name="Braudel on capitalism">{{cite book | last = Braudel | first = Fernand | title = The Wheels of Commerce, Vol. 2, Civilization & Capitalism 15th-18th Century | origyear = 1982 | url = http://books.google.ca/books?id=WPDbSXQsvGIC&lpg=PP1&dq=capitalism%20and%20civilization%20wheels%20of%20commerce&pg=PP1#v=onepage&q=&f=false | publisher = University of California Press | location = Los Angeles | pages = 231-373 | chapter = Production, or Capitalism away from home}}</ref><ref name=Banaji>{{cite journal|author=Banaji, Jairus|year=2007|title=Islam, the Mediterranean and the rise of capitalism|journal=Journal Historical Materialism|volume=15|pages=47–74|publisher=Brill Publishers|doi=10.1163/156920607X171591}}</ref><ref name="britannica">{{cite book|title=Capitalism|publisher=Encyclopedia Britannica|year=2006}}</ref> Capitalism became dominant in the [[Western world]] following the [[History of capitalism|demise of feudalism]].<ref name="britannica" /> Capitalism gradually spread throughout Europe, and in the 19th and 20th centuries, it provided the main means of [[industrialization]] throughout much of the world.<ref name="Scott">{{cite book|title=Industrialism: A Dictionary of Sociology|author=Scott, John|publisher=Oxford University Press|year=2005}}</ref>

There is no consensus on capitalism nor how it should be used as an analytical category.<ref>Grassby, Richard. The Idea of Capitalism before the Industrial Revolution. Critical Issues in History. Lanham, Md: Rowman and Littlefield, 1999, p.1</ref> There are a variety of historical cases over which it is applied, varying in time, geography, politics and culture.<ref name="Scott"/> [[Economists]], [[political economy|political economists]] and [[history|historians]] have taken [[Capitalism#Perspectives|different perspectives]] on the analysis of capitalism.

Economists usually put emphasis on the [[market]] mechanism, degree of government control over markets ([[laissez faire]]), and [[property]] rights<ref>{{cite book|author=Tucker, Irvin B.|title=Macroeconomics for Today|pages=553|year=1997}}</ref><ref>{{cite book|author=Case, Karl E.|title=Principles of Macroeconomics|publisher=Prentice Hall|year=2004}}</ref>, while most political economists emphasize private [[property]], [[Economic power|power]] relations, [[wage labor]], and [[Economic class|class]].<ref name="Stilwell"/> Neither is there universal agreement on whether capitalism is ultimately beneficial for societies or whether it is destructive, resulting in [[Capitalism#Political advocacy|political advocacy]] both for and against capitalism.

== Etymology and early usage==

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Other terms sometimes used for capitalism:

* [[capitalist mode of production]]

* [[economic liberalism]]<ref>{{cite journal|title=Adam Smith and His Legacy for Modern Capitalism|author=Werhane, P.H.|journal=The Review of Metaphysics|volume=47|number=3|year=1994|publisher=Philosophy Education Society, Inc.}}</ref>

* free-enterprise economy<ref name="britannica"/><ref name="rogetfreeenterprise">"free enterprise." Roget's 21st Century Thesaurus, Third Edition. Philip Lief Group 2008.</ref>

* [[free market]]<ref name="rogetfreeenterprise"/><ref name="mutualist">[http://www.mutualist.org/ Mutualist.org]. "...based on voluntary cooperation, free exchange, or mutual aid."</ref>

* laissez-faire capitalism<ref name=friedman>Friedman, Milton. 1962. ''Capitalism and Freedom.'' University of Chicago Press. p 38.</ref>

* [[market economy]]<ref>[http://unabridged.merriam-webster.com/cgi-bin/unabridged?va=market%20economy "market economy"], Merriam-Webster Unabridged Dictionary</ref>

* [[market liberalism]]<ref>{{cite web|url=http://www.cato.org/about.php |title=About Cato |publisher=Cato.org |date= |accessdate=2008-11-06}}</ref><ref>{{cite web|url=http://www.cato.org/university/module10.html |title=The Achievements of Nineteenth-Century Classical Liberalism }} <blockquote>Although the term "liberalism" retains its original meaning in most of the world, it has unfortunately come to have a very different meaning in late twentieth-century America. Hence terms such as "market liberalism," "classical liberalism," or "libertarianism" are often used in its place in America.</blockquote></ref>

* self-regulating market<ref name="rogetfreeenterprise"/>

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{{Wiktionary}}

''Capital'' evolved from ''Capitale'', a late [[Latin]] word based on [[proto-Indo-European language|proto-Indo-European]] ''kaput'', 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 funds, stock of merchandise, sum of money, or money carrying interest.<ref name="Braudel on capitalism">Braudel p.232</ref><ref>[http://www.etymonline.com/index.php?term=cattle Etymology of "Cattle"]</ref><ref name="OED">James Augustus Henry Murray. "Capital". [http://www.archive.org/details/oedvol02 A New English Dictionary on Historical Principles]. ''Oxford English Press''. Vol 2. page 93.</ref> 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, principal, assets, property, patrimony.<ref name="Braudel on capitalism">Braudel p.233</ref>

The term ''capitalist'' refers to an owner of capital rather than an economic system, but shows earlier recorded use than the term ''capitalism'', dating back to the mid-seventeenth century. The ''Hollandische Mercurius'' uses it in 1633 and 1654 to refer to owners of capital.<ref name="Braudel on capitalism">Braudel p.234</ref> [[Arthur Young (writer)|Arthur Young]] was one of first to use ''capitalist'' in his work ''Travels in France'' (1792).<ref name="OED"/><ref>Arthur Young. [http://books.google.com/books?id=l10JAAAAQAAJ&printsec=titlepage#PPA529,M1 Travels in France]</ref> [[David Ricardo]], in his ''[[Principles of Political Economy and Taxation]]'' (1817), referred to "the capitalist" many times.<ref>Ricardo, David. Principles of Political Economy and Taxation>. 1821. John Murray Publisher, 3rd edition.</ref> [[Samuel Taylor Coleridge]], an English [[poet]], used ''capitalist'' in his work ''Table Talk'' (1823).<ref>Samuel Taylor Coleridge. [http://books.google.com/books?id=ma-4W-XiGkIC&printsec=titlepage&dq=%22capitalists+for+having+labor+at+demand Tabel The Complete Works of Samuel Taylor Coleridge]. page 267.</ref> [[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 (novel)|Sybil]]''.<ref name="OED"/> [[Karl Marx]] and [[Friedrich Engels]] used the term ''capitalist'' (''Kapitalist'') in ''[[The Communist Manifesto]]'' (1848) to refer to a private owner of capital.

The term ''capitalism'' appeared in 1753 in the ''Encyclopédia'', with the narrow meaning of "The state of one who is rich".<ref name="Braudel on capitalism">Braudel p.237</ref> However, according to the ''[[Oxford English Dictionary]]'' (OED), the term ''capitalism'' was first used by novelist [[William Makepeace Thackeray]] in 1854, by which he meant having ownership of capital.<ref name="OED">James Augustus Henry Murray. "Capitalism" page 94.</ref> Also according to the OED, [[Carl Adolph Douai]], a [[German-American]] [[Socialism|socialist]] and [[Abolitionism|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.<ref> Braudel, Fernand. The Wheels of Commerce: Civilization and Capitalism 15-18 Century, Harper and Row, 1979, p.237</ref> Marx and Engels referred to the ''capitalistic system'' (''kapitalistisches System'')<ref>Karl Marx. Chapter 16: Absolute and Relative Surplus-Value. ''[[Das Kapital]]''.

<blockquote>''{{lang|de|Die Verlängrung des Arbeitstags über den Punkt hinaus, wo der Arbeiter nur ein Äquivalent für den Wert seiner Arbeitskraft produziert hätte, und die Aneignung dieser Mehrarbeit durch das Kapital - das ist die Produktion des absoluten Mehrwerts. Sie bildet die allgemeine Grundlage des '''kapitalistischen Systems''' und den Ausgangspunkt der Produktion des relativen Mehrwerts.}}''</blockquote>

<blockquote>The prolongation of the working-day beyond the point at which the labourer would have produced just an equivalent for the value of his labour-power, and the appropriation of that surplus-labour by capital, this is production of absolute surplus-value. It forms the general groundwork of the '''capitalist system''', and the starting-point for the production of relative surplus-value.</blockquote></ref><ref>Karl Marx. Chapter Twenty-Five: The General Law of Capitalist Accumulation. ''[[Das Kapital]]''.

* ''{{lang|de|Die Erhöhung des Arbeitspreises bleibt also eingebannt in Grenzen, die die Grundlagen des '''kapitalistischen Systems''' nicht nur unangetastet lassen, sondern auch seine Reproduktion auf wachsender Stufenleiter sichern.}}''

* ''{{lang|de|Die allgemeinen Grundlagen des '''kapitalistischen Systems''' einmal gegeben, tritt im Verlauf der Akkumulation jedesmal ein Punkt ein, wo die Entwicklung der Produktivität der gesellschaftlichen Arbeit der mächtigste Hebel der Akkumulation wird.}}''

* ''{{lang|de|Wir sahen im vierten Abschnitt bei Analyse der Produktion des relativen Mehrwerts: innerhalb des '''kapitalistischen Systems''' vollziehn sich alle Methoden zur Steigerung der gesellschaftlichen Produktivkraft der Arbeit auf Kosten des individuellen Arbeiters;}}''</ref> and to the [[capitalist mode of production]] (''kapitalistische Produktionsform'') in ''[[Das Kapital]]'' (1867).<ref>Saunders, Peter (1995). ''Capitalism''. University of Minnesota Press. p. 1</ref> The use of the word "capitalism" in reference to an economic system appears twice in Volume I of ''Das Kapital'', p.&nbsp;124 (German edition), and in ''Theories of Surplus Value'', tome II, p.&nbsp;493 (German edition). Marx did not extensively use the term.

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.<ref>Karl Marx. ''[[Das Kapital]]''.</ref> 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'' and an 1884 article in the ''[[Pall Mall Gazette]]'' also used the term ''capitalism''.<ref name="OED"/> A later use of the term ''capitalism'' to describe the production system was by the [[Germany|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 ==

{{Sync|History of capitalism}}

{{Main|History of capitalism}}

=== Mercantilism ===

{{Main|Mercantilism}}

[[File:Lorrain.seaport.jpg|left|thumb|A painting of a French seaport from 1638 at the height of [[mercantilism]].]]

The period between the 16th and 18th centuries is commonly described as [[mercantilism]]. <ref name="Burnham" /> This period was associated with geographic discoveries by merchant overseas traders, especially from England and the [[Low Countries]]; the [[European colonization of the Americas]]; and the rapid growth in overseas trade. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods.<ref name="Scott" /> While some scholars see mercantilism as the earliest stage of modern capitalism, others argue that modern 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 production - labor and land - from 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 argued that the hallmark of capitalism is 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."<ref>Polanyi, Karl. The Great Transformation. Beacon Press,Boston.1944.p87</ref>

The earliest forms of mercantilism date back to the [[Roman Empire]]. When the Roman Empire expanded, the mercantilist economy expanded throughout Europe. After the [[decline of the Roman Empire|collapse of the Roman Empire]], most of the European economy became controlled by local [[feudal]] powers, and mercantilism collapsed there. However, mercantilism persisted in [[Arabia]]. Due to its 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 finally revived in Europe in the 14th century, as mercantilism spread from Spain and Portugal.<ref>[http://history.howstuffworks.com/european-history/capitalism3.htm The Rise of Capitalism]</ref>

Among the major tenets of mercantilist theory was [[bullionism]], a doctrine stressing 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 asserted that only raw materials that could not be extracted at home should be imported; and promoted government subsides, such as the granting of monopolies and protective [[tariff]]s, were necessary to encourage home production of manufactured goods. European [[merchant]]s, backed by state controls, [[subsidy|subsidies]], and [[monopoly|monopolies]], made most of their profits from the buying and selling of 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…"<ref>Quoted in Sir George Clark, ''The Seventeenth Century'' (New York: Oxford University Pres, 1961), p. 24.</ref> Similar practices of economic regimentation had begun earlier in the medieval towns. However, under mercantilism, given the contemporaneous rise of the [[Absolute monarchy|absolutism]], the state superseded the local [[guild]]s 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.<ref>Mancur Olson, The rise and decline of nations: economic growth, staglaction, and social rigidities (New Haven & London 1982).</ref>

At the period from the 18th century, the commercial stage of capitalism originated from the start of the British [[East India Company]] and the [[Dutch East India Company]].<ref name="Banaji" /><ref name="britannica2">{{cite book|title=Economic system :: Market systems|url=http://www.britannica.com/EBchecked/topic/178493/economic-system/61117/Market-systems#toc242146|publisher=Encyclopedia Britannica|year=2006}}</ref> These companies were characterized by their [[colonialism|colonial]] and [[expansionism|expansionary]] powers given to them by nation-states.<ref name="Banaji" /> 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]]. In his "History of Economic Analysis", Austrian economist [[Joseph Schumpeter]] reduced mercantilist propositions to three main concerns: exchange controls, export monopolism and balance of trade. <ref>Schumpeter, J.A. (1954) History of Economic Analysis</ref>

=== Industrialism ===

{{See also|Industrial Revolution}}

[[File:london.bankofengland.arp.jpg|thumb|The [[Bank of England]] is one of the oldest [[central bank]]s. It was founded in 1694 and [[nationalised]] in 1946.]]

A new group of economic theorists, led by [[David Hume]]<ref>{{cite book|author=Hume, David|title=Political Discourses|location=Edinburgh|publisher=A. Kincaid &amp; A. Donaldson|year=1752}}</ref> 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 effected the decline of the traditional handicraft skills of [[artisan]]s, [[guild]]s, and [[journeyman|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 routinization of work tasks; and finally established the global domination of the capitalist mode of production.<ref name="Burnham" />

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.<ref name="laissezf">{{cite web |title=laissez-faire|url=http://www.bartleby.com/65/la/laissezf.html}}</ref> In the 1840s, Britain adopted a less protectionist policy, with the repeal of the [[Corn Laws]] and the [[Navigation Acts]].<ref name="Burnham" /> Britain reduced [[tariffs]] and [[import quota|quotas]], in line with [[Adam Smith]] and [[David Ricardo]]'s advocacy for [[free trade]]. [[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." <ref>Polanyi, Karl. The Great Transformation, Beacon Press. Boston. 1944. p.78</ref> Other sources argued that mercantilism fell after the repeal of the Navigation Acts in 1849.<ref name="laissezf"/><ref>{{cite web |title=Navigation Acts |url=http://www.bartleby.com/65/na/NavigatA.html}}</ref><ref name="mercantilism">{{cite web|last=LaHaye|first=Laura|title=Mercantilism|url=http://www.econlib.org/library/Enc/Mercantilism.html|work=[[Concise Encyclepedia of Economics]]|publisher=Fortune Encyclopedia of Economics|year=1993}}</ref>.

=== Monopolism ===

{{See also|Gilded Age|Progressive Era}}

In the late 19th century, the control and direction of large areas of industry came into the hands of [[trust]]s, [[financiers]] and [[holding company|holding companies]]. This period was dominated by an increasing number of oligopolistic firms earning supernormal profits.<ref>[Economy Professor http://www.economyprofessor.com/economictheories/monopoly-capitalism.php]</ref> Major characteristics of capitalism in this period included the establishment of large industrial [[cartel]]s or [[monopoly|monopolies]]; the ownership and management of industry by financiers divorced from the production process; and the development of a complex system of [[banking]], an [[equity market]], and corporate holdings of capital through [[stock]] ownership.<ref name="Scott" /> The [[petroleum]], [[telecommunication]], [[railroad]], [[shipping]], [[banking]] and [[financial]] industries are characterized by its monopolistic domination. Inside these [[corporation]]s, a division of labor separates [[shareholder]]s, owners, managers, and actual laborers.<ref>{{cite book|author=Scott, John|title=A Dictionary of Sociology|publisher=Oxford University Press|year=2005}}</ref>

By the last quarter of the 19th century, the emergence of large industrial trusts had provoked legislation in the US to reduce the monopolistic tendencies of the period. Gradually, during this [[Progressive Era]], the [[US government]] played a larger and larger role in passing [[United States antitrust law|antitrust]] laws and regulation of industrial standards for key industries of special public concern. By the end of the 19th century, [[Depression (economics)|economic depressions]] and [[boom and bust]] [[business cycle]]s had become a recurring problem. In particular, the [[Long Depression]] of the 1870s and 1880s and the [[Great Depression]] of the 1930s affected almost the entire capitalist world, and generated discussion about capitalism’s long-term survival prospects. During the 1930s, [[Marxist]] commentators often posited the possibility of capitalism's decline or demise, often in contrast to the ability of the [[Soviet Union]] to avoid suffering the effects of the global depression.<ref>{{cite book|author=Engerman, Stanley L.|title=The Oxford Companion to United States History|publisher=Oxford University Press|year=2001}}</ref>

=== Keynesianism and neoliberalism ===

{{Main|Keynesianism|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.

[[File:NY stock exchange traders floor LC-U9-10548-6.jpg|thumb|The New York [[stock exchange]] [[trading room|traders' floor]] (1963)]]

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]].<ref name="Burnham" /> 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]].<ref>{{cite book|author=Barnes, Trevor J.|title=Reading economic geography|publisher=Blackwell Publishing|isbn=063123554X|pages=127|year=2004}}</ref> Exceptionally high [[inflation]] combined with slow output growth, rising unemployment, and eventually [[recession]] to cause a loss of credibility in the [[Keynesian]] welfare-statist mode of regulation. Under the influence of [[Friedrich Hayek]] and [[Milton Friedman]], [[Western world|Western]] states embraced policy prescriptions inspired by [[laissez-faire]] capitalism and [[classical liberalism]]. 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. Finally, the general public's interest was shifted from the [[collectivist]] concerns of Keynes's managed capitalism to a focus on individual freedom and choice, called "remarketized capitalism." <ref name="Fulcher, James 2004">Fulcher, James. Capitalism. 1st ed. New York: Oxford University Press, 2004.</ref> In the eyes of many economic and political commentators, the collapse of the [[Soviet Union]] supposedly brought further evidence of the superiority of market capitalism over communism.

=== Globalization ===

{{Main|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 government|world system]].<ref name="Burnham" /> However, other thinkers argue that globalization, even in its quantitative degree, is no greater now than during earlier periods of capitalist trade.<ref>{{cite book |title=After the New Economy |last=Henwood |first=Doug |publisher=New Press |date=2003-10-01 |isbn=1-56584-770-9}}</ref>

== Perspectives ==

=== Classical political economy ===

{{Main|Classical economics|Classical liberalism}}

[[File:AdamSmith.jpg|thumb|right|[[Adam Smith]]]]

The [[classical economics|classical school 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 [[François Quesnay]] promoted [[free trade]] based on a conception that wealth originated from land. Quesnay's ''Tableau Économique'' (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.

[[Adam Smith|Adam 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, particularly his theory of the "[[invisible hand]]" of the market, through which the pursuit of individual self-interest unintentionally produces a 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.<ref>Degen, Robert. ''The Triumph of Capitalism''. 1st ed. New Brunswick, NJ: Transaction Publishers, 2008.</ref> 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.<ref>{{cite book|author=Hunt, E.K.|title=History of Economic Thought: A Critical Perspective|publisher=M.E. Sharpe|year=2002|pages=92}}</ref> In ''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.<ref>{{cite book|title=Blackwell Encyclopedia of Political Thought|publisher=Blackwell Publishing|year=1991|pages=91}}</ref> He also argued that [[inflation]] is closely related to changes in quantity of [[money]] and [[Credit (finance)|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.<ref name="Skousen2001">{{cite book|author=Skousen, Mark|title=The Making of Modern Economics: The Lives and Ideas of the Great Thinkers|publisher=M.E. Sharpe|year=2001|pages=98–102, 134}}</ref>

The values of classical political economy are strongly associated with the [[classical liberalism|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]].<ref name="aaron2003">Eric Aaron, ''What's Right?'' (Dural, Australia: Rosenberg Publishing, 2003), 75.</ref> Classical liberal thought has generally assumed a clear division between the economy and other realms of social activity, such as the state.<ref>{{cite book|title=Capitalism: Dictionary of the Social Sciences|author=Calhoun, Craig|publisher=Oxford University Press|year=2002}}</ref>

While economic liberalism favors markets unfettered by the government, it maintains that the state has a legitimate role in providing [[public good]]s.<ref name = "econlib"/> 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 road|toll]]). In addition, he advocated [[Free trade area|retaliatory tariffs]] to bring about free trade, and [[copyright]]s and [[patent]]s to encourage innovation.<ref name=econlib>{{cite web|title=Adam Smith|publisher=econlib.org|url=http://www.econlib.org/library/Enc/bios/Smith.html}}</ref>

=== Marxian political economy ===

{{Main|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 of production|social relations]] between individuals based on their connection with the process of production) in which capitalism has become the dominant mode of production.<ref name="Burnham">{{cite book|author=Burnham, Peter|title=Capitalism: The Concise Oxford Dictionary of Politics|publisher=Oxford University Press|year=2003}}</ref> 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 [[socialism|socialist]] or [[communism|communist]] transformation of human society as the end of the series of first aristocratic, then capitalist, and finally working class rule was reached.<ref>[[The Communist Manifesto]]</ref><ref>"To Marx, the problem of reconstituting society did not arise from some prescription, motivated by his personal predilections; it followed, as an iron-clad historical necessity – on the one hand, from the productive forces grown to powerful maturity; on the other, from the impossibility further to organize these forces according to the will of the [[law of value]]." - [[Leon Trotsky]], "Marxism in our Time", 1939 (Inevitability of Socialism) [http://wsws.org/articles/2008/nov2008/time-n01.shtml]</ref>

[[Image:Karl Marx.jpg|left|thumb|upright|[[Karl Marx]]]]

Following [[Adam Smith]], Marx distinguished the [[use value]] of commodities from their [[exchange value]] in the market. [[capital (economics)|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 ''[[Das Kapital|Capital]]'', Marx argues that the [[capitalist mode of production]] is distinguished by how the owners of capital extract this surplus from workers—all prior class societies had extracted [[surplus labor]], but capitalism was new in doing so via the sale-value of produced commodities.<ref>{{cite web |url=http://www.marxists.org/archive/marx/works/1894-c3/ch47.htm|title=Capital. v. 3. Chapter 47: Genesis of capitalist ground rent|author=Karl Marx |accessdate=2008-02-26|publisher=Marxists }}</ref> 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, in order to survive, to sell their labor for a living wage.<ref>Karl Marx. Chapter Twenty-Five: The General Law of Capitalist Accumulation. ''[[Das Kapital]]''.</ref><ref>Dobb, Maurice 1947 ''Studies in the Development of Capitalism.'' New York: International Publishers Co., Inc.</ref><ref>David Harvey 1989 ''The Condition of Postmodernity''</ref> In conjunction with his criticism of capitalism was Marx's belief that exploited labor would be the driving force behind a revolution to a socialist-style economy.<ref>Wheen, Francis ''Books That Shook the World: Marx's Das Kapital''1st ed. London: Atlantic Books, 2006</ref> For Marx, this cycle of the extraction of the surplus value by the owners of capital or the bourgeoisie becomes the basis of [[class struggle]]. This argument is intertwined with Marx's version of the [[labor theory of value]] asserting that labor is the source of all value, and thus of profit.

[[Vladimir Lenin]], in ''[[Imperialism, the Highest Stage of Capitalism]]'' (1916), modified classic Marxist theory and argued that capitalism necessarily induced [[monopoly capitalism]] - which he also called "imperialism" - in order to find new markets and resources, representing the last and highest stage of capitalism.<ref>{{cite web|url=http://www.marxists.org/archive/lenin/works/1916/imp-hsc/index.htm|title=Imperialism, the Highest Stage of Capitalism|publisher=Marxists|accessdate=2008-02-26|year=1916}}</ref> Some 20th century [[Marxian economics|Marxian economists]] consider capitalism to be a social formation where capitalist class processes dominate, but are not exclusive.<ref>See, for example, the works of Stephen Resnick and Richard Wolff.</ref> 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.<ref>{{cite book|author=Ste. Croix, G. E. M. de|title=The Class Struggle in the Ancient Greek World|year=1982|pages=52–3}}</ref>

=== Weberian political sociology ===

[[File:Max Weber 1917.jpg|thumb|250px|[[Max Weber]] in 1917]]

In some [[social science]]s, the understanding of the defining characteristics of capitalism has been strongly influenced by 19th century German social theorist [[Max Weber]]. Weber considered [[market]] [[trade|exchange]], rather than production, as the defining feature of capitalism; capitalist enterprises, in contrast to their counterparts in prior modes of economic activity, was their rationalization of production, directed toward maximizing [[Economic efficiency|efficiency]] and [[Productivity (economics)|productivity]]. According to Weber, workers in pre-capitalist economic institutions understood work in terms of a personal relationship between [[Master craftsman|master]] and [[journeyman]] in a [[guild]], or between [[lord]] and [[peasant]] in a [[Manorialism|manor]].<ref>{{cite web|url=http://www.humanities.mq.edu.au/Ockham/y64l10.html|title=MAX WEBER: ON CAPITALISM|accessdate=2008-02-26|publisher=Macquarie University|author=Kilcullen, John|year=1996}}</ref>

In his book ''[[The Protestant Ethic and the Spirit of Capitalism]]'' (1904-1905), 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, 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 Proverbs 22:29, “Seest thou a man diligent in his calling? He shall stand before kings” and in Colossians 3:23, "Whatever you do, do your work heartily, as for the Lord rather than for men." In the ''Protestant Ethic'', Weber further stated that “moneymaking – provided it is done legally – is, within the modern economic order, the result and the expression of diligence in one’s calling…” And, "If God show you a way in which you may lawfully get more than in another way (without wrong to your soul or to any other), if you refuse this, and choose the less gainful way, you cross one of the ends of your calling, and you refuse to be God's steward, and to accept His gifts and use them for him when He requierth it: you may labour to be rich for God, though not for the flesh and sin" (p.&nbsp;108).

Western Capitalism, was, most generally for Weber, the "rational organization of formally free labor." The idea of the "formally free" laborer, meant, in the double sense of Marx, that the laborer was both free to own property, and free of the ability to reproduce his labor power, i.e., was the victim of expropriation of his means of production. It is only on these conditions, still abundantly obvious in the modern world of Weber, that western capitalism is able to exist.

For Weber,modern western capitalism represented the order "now bound to the technical and economic conditions of machine production which to-day 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.&nbsp;123).<ref>{{cite web|url=http://www.economyandsociety.com/events/Ethic&SpiritCapsm_Conf_Agenda2.pdf|format=PDF|title=Conference Agenda|publisher=Economy and Society|accessdate=2008-02-26}}</ref> 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|Institutional economics}}

[[File:Veblen3a.jpg|thumb|right|[[Thorstein Veblen]]]]

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 (see [[John Dewey]], [[Thorstein Veblen]], and [[Daniel Bromley]].)

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 [[Conspicuous consumption|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 is often 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|Historical school of economics|Austrian School}}

From the perspective of the [[Historical school of economics|German Historical School]], capitalism is primarily identified in terms of the organization of production for [[market]]s. Although this perspective shares similar theoretical roots with that of Weber, its emphasis on markets and [[money]] lends it different focus.<ref name="Burnham"/> 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 system|monetary economy]] combined with an emphasis on the profit motive.

[[File:MisesLibrary.jpg|thumb|left|[[Ludwig von Mises]]]]

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 through much of the 20th century. The Austrian economist [[Joseph Schumpeter]], a forerunner of the Austrian School of economics, emphasized the "[[creative destruction]]" of capitalism—the fact that market economies undergo constant change. At any moment of time, posits Schumpeter, 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 capitalism]] 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, asserted 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.

Austrian economists claim that [[Karl Marx|Marx]] failed to make the distinction between ''capitalism'' and ''[[mercantilism]]''.<ref name="rothbard">{{cite journal|title=A Future of Peace and Capitalism |last=Rothbard |first=Murray N. |authorlink=Murray N. Rothbard |url=http://www.mises.org/story/1559 |journal=Modern Political Economy |pages=419-430 |location=Boston |publisher=Allyn and Bacon |year=1973|quote=In fact the mercantilist system is essentially what we’ve got right now. There is very little difference between state monopoly capitalism, or corporate state capitalism, whatever you want to call it, in the United States and Western Europe today, and the mercantilist system of the pre-Industrial Revolution era. There are only two differences; one is that their major activity was commerce and ours is industry. But the essential modus operandi of the two systems is exactly the same: monopoly privilege, a complete meshing in what is now called the "partnership of government and industry," a pervasive system of militarism and war contracts, a drive toward war and imperialism; the whole shebang characterized the seventeenth and eighteenth centuries.}}</ref><ref>{{cite journal |last=Osterfeld |first=David |title=Marxism, Capitalism and Mercantilism| journal=The Review of Austrian Eonomics |volume=5 |issue=1 |issn=0889-304 |year=1991|pages=107-114}}</ref> They argue that Marx conflated the [[imperialistic]], [[colonialistic]], [[protectionist]] and [[economic interventionism|interventionist]] doctrines of mercantilism with capitalism.

Austrian economics has been a major influence on some forms of [[Libertarianism#Propertarian_libertarianism|libertarianism]], in which [[laissez-faire]] capitalism is considered to be the ideal economic system.<ref>[http://mises.org/etexts/austrian.asp What is Austrian Economics?], [[Ludwig Von Mises Institute]].</ref> It influenced [[Economics|economists]] and [[political philosophers]] and theorists including [[Henry Hazlitt]], [[Hans-Hermann Hoppe]], [[Israel Kirzner]], [[Murray Rothbard]], [[Walter Block]] and [[Richard M. Ebeling]].<ref>DiLorenzo, Thomas. "Frederic Bastiat (1801-1850): Between the French and Marginalist Revolutions." Mises.org|http://www.mises.org/fredericbastiat.asp</ref><ref>http://www.mises.org/journals/scholar/BastiatAustrian.pdf|Thornton, Mark. "Frédéric Bastiat as an Austrian Economist." Mises.org.</ref>

=== Keynesian economics ===

{{Main|Keynesian economics}}

[[File:John Maynard Keynes.jpg|thumb|[[John Maynard Keynes]]]]

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 [[economic equilibrium|equilibrium]] despite high [[unemployment]]. Essentially rejecting [[Say's law]], he argued that some people may have a [[liquidity preference]] which 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 (economics)|deflation]] of the sort seen during the 1930s. He and his followers recommended "[[Deficit spending|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.<ref>{{cite web |url=http://www.marxists.org/archive/mattick-paul/1969/marx-keynes/ch01.htm |title=Marx and Keynes: the limits of the mixed economy |author=Paul Mattick |accessdate=2008-02-26|publisher=Marxists }}</ref> 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 reign 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.<ref>Erhardt III, Erwin. "History of Economic Development." University of Cincinnati. Lindner Center Auditorium, Cincinnati. 07 Nov. 2008.</ref> 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-Ricardianism|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|Neoclassical economics}}

Today, the majority academic research on capitalism in the English-speaking world draws on [[neoclassical economics|neoclassical economic thought]]. It favors extensive market coordination and relatively neutral patterns of governmental market regulation aimed at maintaining property rights, rather than privileging particular social actors; deregulated [[labor market]]s; corporate governance dominated by financial owners of firms; and financial systems depending chiefly on [[capital market]]-based financing rather than state financing.

[[Image:MiltonFriedman.jpg|thumb|left|[[Milton Friedman]]]]

[[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 claims 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 tantamount to Smith’s argument that self interest in turn benefits the whole of society.<ref>Friedman, Milton. "The Social Responsibility of Business is to Increase its Profits." The New York Times Magazine 13 Sep. 1970.</ref> 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 (economics)|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 [[laissez-faire|if left to themselves]] and depressions result only from government intervention.<ref>{{cite book|title=Macroeconomics and New Macroeconomics|author=Felderer, Bernhard}}</ref> Friedman, for example, argued that the [[Great Depression]] was result of a contraction of the money supply, controlled by the [[Federal Reserve System|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.<ref name="fed">{{cite web|url=http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm|title=Remarks by Governor Ben S. Bernanke |publisher=The Federal Reserve Board|accessdate=2008-02-26|date=2002-11-08|author=Ben Bernanke}}</ref>

Neoclassical economists, today the majority of economists,<ref>{{cite book|author=Yonary, Yuval P.|title=The Struggle Over the Soul of Economics|year=1998|publisher=Princeton University Press|isbn=0691034192|pages=29}}</ref> consider value to be subjective, varying from person to person and for the same person at different times, and thus reject the labor theory of value. [[Marginalism]] is the theory that economic value results from marginal utility and [[marginal cost]] (the [[marginal concepts]]). These economists see capitalists as earning profits by forgoing current consumption, by taking risks, and by organizing production.

== Political advocacy ==

=== Support ===

====Economic growth====

[[File:Gdp chart.png|thumb|300px|World's [[GDP]] per capita shows exponential acceleration since the beginning of the Industrial Revolution.<ref>{{cite book |title=The World Economy: A Millennial Perspective |author=Angus Maddison |publisher=[[OECD]] |location=Paris |date=2001 |isbn=92-64-18998-X}}</ref>]]

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.<ref>{{cite web |url=http://www.minneapolisfed.org/pubs/region/04-05/essay.cfm |title=The Industrial Revolution: Past and Future |author=Robert E. Lucas Jr. |work=Federal Reserve Bank of Minneapolis 2003 Annual Report |accessdate=2008-02-26}}</ref><ref>{{cite web |url=http://www.j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html |title=Estimating World GDP, One Million B.C. – Present |author=J. Bradford DeLong |accessdate=2008-02-26 }}</ref> While the measurements are not identical, 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.<ref>{{cite web |url=http://www.econlib.org/library/Enc/IndustrialRevolutionandtheStandardofLiving.html |title=Industrial Revolution and the Standard of Living |author=Clark Nardinelli |accessdate=2008-02-26 }}</ref> 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.<ref>{{cite book|author=Barro, Robert J.|title=Macroeconomics|publisher=MIT Press|year=1997|isbn=0262024365}}</ref><ref>{{cite web|url=http://www.capitalism.org/faq/labor.htm|title=Labor and Minimum Wages|publisher=Capitalism.org|accessdate=2008-02-26}}</ref><ref>{{cite web|url=http://www.mises.org/article.aspx?Id=1481|title=Morality and Economic Law: Toward a Reconciliation|publisher=Ludwig von Mises Institute|accessdate=2008-02-26|author=Woods, Thomas E.|date=2004-04-05}}</ref><ref>{{cite web|url=http://www.taemag.com/issues/articleid.18013/article_detail.asp|title=Three Cheers for Global Capitalism |publisher=The American Enterprise|accessdate=2008-02-26|author=Norberg, Johan}}</ref> 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 [[tribe|tribal]] societies or in socialist societies.

====Political freedom====

[[Milton Friedman]] has argued that the [[economic freedom]] of competitive capitalism is a requisite of [[political freedom]]. Friedman argued that centralized control of economic activity is always accompanied by political repression. In his view, transactions in a market economy are voluntary, and the wide diversity that voluntary activity permits is a fundamental threat to repressive political leaders and greatly diminish power to coerce. Friedman's view was also shared by [[Friedrich Hayek]] and [[John Maynard Keynes]], both of whom believed that capitalism is vital for freedom to survive and thrive.<ref>{{cite book|author=Friedrich Hayek|title=The Road to Serfdom|publisher=University Of Chicago Press|year=1944|isbn=0-226-32061-8}}</ref><ref>{{cite book|author=Bellamy, Richard|title=The Cambridge History of Twentieth-Century Political Thought|publisher=Cambridge University Press|year=2003|isbn=0-521-56354-2|pages=60}}</ref>

====Self-organization====

Austrian School economists have argued that capitalism can organize itself into a complex system without an external guidance or planning mechanism. Friedrich Hayek coined the term "[[catallaxy]]" to describe what he considered the phenomenon of [[self-organization]] underpinning capitalism. From this perspective, in process of self-organization, the [[profit (economics)|profit]] motive has an important role. From transactions between buyers and sellers price systems emerge, and prices serve as a signal as to the urgent and unfilled wants of people. The promise of profits 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.<ref>{{cite book|author=Walberg, Herbert|title=Education and Capitalism|publisher=Hoover Institution Press|year=2001|pages=87–89|isbn=0-8179-3972-5}}</ref>

This decentralized system of coordination is viewed by some supporters of capitalism as one of its greatest strengths. They argue that it permits many solutions to be tried, and that real-world competition generally finds a good solution to emerging challenges. In contrast, they argue, [[central planning]] often selects inappropriate solutions as a result of faulty forecasting. However, in all existing modern economies, the state conducts some degree of [[planned economy|centralized economic planning]] (using such tools as allowing the country's [[central bank]] to set base [[interest rates]]), ostensibly as an attempt to improve efficiency, attenuate cyclical volatility, and further particular social goals. Proponents who follow the Austrian School argue that even this limited control creates inefficiencies because we cannot predict the long-term activity of the economy. Milton Friedman, for example, has argued that the [[Great Depression]] was caused by the erroneous policy of the [[Federal Reserve System|Federal Reserve]].<ref name="fed"/>

====Moral imperative====

[[Ayn Rand]] was a prominent philosophical supporter of [[laissez-faire capitalism]]; her novel [[Atlas Shrugged]] was an influential publication on the subject of business and continues to be a best-seller.<ref>[http://www.nytimes.com/2007/09/15/business/15atlas.html?_r=1&oref=slogin ''Ayn Rand's Literature of Capitalism'', The New York Times]</ref> The first person to endow capitalism with a new code of morality (Rational [[Selfishness]]),<ref>[[The Virtue of Selfishness]]</ref> she did not justify capitalism on the grounds of pure "practicality" (that it is the best wealth-creating system), or the [[supernatural]] (that [[God]] or [[religion]] supports [[Capitalism: the Unknown Ideal|capitalism]]), or because it benefits the most people, but maintained that it is the only morally valid [[socio-political]] system because it allows people to be free to act in their rational self-interest.<ref>[[Capitalism: The Unknown Ideal]]</ref> These thinkers have had a substantial influence on the [[Libertarian Party (United States)|Libertarian Party]]. The Libertarian Party strongly advocates the elimination of most, if not all, [[Sovereign state|state]] involvement in the marketplace. The [[Republican Liberty Caucus]] is the [[libertarian]] branch of the [[Republican Party (United States)|Republican Party]].

=== Criticism ===

{{Main|Criticisms of capitalism|Anti-capitalism}}

Notable critics of capitalism have included: [[Socialism|socialists]], [[Anarchism|anarchists]], [[Communism|communists]], [[Technocracy|Technocrats]], some forms of [[conservatism]], [[Luddite]]s, [[Narodnik]]s, some schools of [[nationalism]] and [[Shakers]]. [[Marxism]] advocated a revolutionary overthrow of capitalism that would lead to [[socialism]] before eventually transforming into [[communism]] after class antagonisms and the state ceased to exist. Marxism influenced [[Social democracy|social democratic]] and [[Labour Party|labour parties]] as well as some moderate [[democratic socialists]], who seek change through existing democratic channels instead of revolution, and believe that capitalism should be heavily regulated rather than abolished, supplementing the market economy with a mixed economy. Many aspects of capitalism have come under attack from the [[anti-globalization]] movement, which is primarily opposed to corporate capitalism.

====Religious criticism and opposition====

Many religions have criticized or opposed specific elements of capitalism; traditional [[Judaism]], [[Christianity]], and [[Islam]] forbid [[Usury|lending money at interest]], although methods of [[Islamic banking]] have been developed. Christianity has been a source of both praise and criticism for capitalism, particularly its [[Economic materialism|materialist]] aspects.<ref>{{cite web|url=http://www.vatican.va/archive/ENG0015/__P8C.HTM#-2FX|title=III. The Social Doctrine of the Church|publisher=The Vatican|accessdate=2008-02-26}}</ref> The first socialists drew many of their principles from Christian values, against "bourgeois" values of profiteering, greed, selfishness, and hoarding. Some Christian critics of capitalism may not oppose capitalism entirely, but support a mixed economy in order to ensure adequate labor standards and relations, as well as economic justice. Indian philosopher [[P.R. Sarkar]], founder of the [[Ananda Marga]] movement, developed the [[Law of Social Cycle]] to identify the [[Economic collapse|problems of capitalism]] and proposed the [[Progressive Utilization Theory]] (PROUT) as a solution to its ills.<ref>{{cite web |url=http://www.prout.org/aftercapitalism/ |title=After Capitalism |author=Dada Maheshvarananda |accessdate=2008-02-26}}</ref><ref>{{cite web |url=http://www.proutworld.org/|title=proutworld|accessdate=2008-02-26|publisher=ProutWorld}}</ref> [[Pope Benedict XVI]] issued an [[encyclical]] [[Caritas in veritate]] (Charity in Truth) in 2009; he stated: "''The dignity of the individual and the demands of justice require, particularly today, that economic choices do not cause disparities in wealth to increase in an excessive and morally unacceptable manner''"<ref>[http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html Caritas in veritate paragraph 32]</ref> and "''Therefore, it must be borne in mind that grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution''".<ref>[http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html Caritas in veritate paragraph 36]</ref>

====Tendency towards oligopoly and monopoly====

Critics argue that capitalism is associated with: unfair and inefficient [[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]]; repressions of workers and trade unionists, and phenomena such as [[social alienation]], [[Economic inequality|inequality]], [[unemployment]], and economic instability. Critics have argued that there is an inherent tendency towards oligolopolistic structures when laissez-faire is combined with capitalist private property. Capitalism is regarded by many socialists to be irrational in that production and the direction the economy is unplanned, creating many inconsistencies and internal contradictions.

In the early 20th century, [[Vladimir Lenin]] argued that state use of military power to defend capitalist interests abroad was an inevitable corollary of monopoly capitalism.<ref>{{cite web |url=http://www.marxists.org/archive/lenin/works/1916/imp-hsc/index.htm |title=Imperialism: The Highest Stage of Capitalism |author=Vladimir Lenin |accessdate=2008-02-26}}</ref>

Economist Branko Horvat states, "it is now well known that capitalist development leads to the concentration of capital, employment and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom."<ref>{{cite book|author=Horvat, B.|title=The Political Economy of Socialism|location=Armonk, NY|publisher=M.E.Sharpe Inc.|pages=11}}</ref> [[Southern Methodist University]] Economics Professor [[Ravi Batra]] argues that excessive income and wealth inequalities are a fundamental cause of financial crisis and economic depression, which will lead to the [[The Downfall of Capitalism and Communism|collapse of capitalism]] and the emergence of a new social order.

====Environmental destruction of unfettered economic growth====

Environmentalists have argued that capitalism requires continual economic growth, and will inevitably deplete the finite natural resources of the earth, and other broadly utilized resources. [[Murray Bookchin]] has argued that capitalist production [[Externalities|externalizes]] environmental costs to all of society, and is unable to adequately mitigate its impact upon ecosystems and the biosphere at large. [[Labor history (discipline)|Labor historians]] and scholars, such as [[Immanuel Wallerstein]], Tom Brass and latterly Marcel van der Linden, have argued that [[Unfree labour|unfree labor]]—by [[Slavery|slaves]], [[indentured servant]]s, prisoners, and other coerced persons—is compatible with capitalist relations.<ref>That unfree labor is acceptable to capital was argued during the 1980s by Tom Brass. See ''Towards a Comparative Political Economy of Unfree Labor'' (Cass, 1999). {{cite web |url=http://www.historycooperative.org/journals/llt/52/linden.html |title="Labour History as the History of Multitudes", ''Labour/Le Travail'', 52, Fall 2003, p. 235-244 |author=Marcel van der Linden |accessdate=2008-02-26}}</ref>

=== Democracy, the state, and legal frameworks ===

{{Main|History of capitalist theory}}

====Private property====

The relationship between the [[Sovereign state|state]], its formal mechanisms, and capitalist societies has been debated in many fields of social and political theory, with active discussion since the 19th century. [[Hernando de Soto (economist)|Hernando de Soto]] is a contemporary 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.<ref>{{cite web |url=http://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm |title=The mystery of capital|author=Hernando de Soto|accessdate=2008-02-26}}</ref> 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.<ref>{{cite web |url=http://www.marxists.org/archive/marx/works/1867-c1/ch27.htm |title=Capital, v. 1. Part VIII: primitive accumulation|author=Karl Marx|accessdate=2008-02-26}}</ref><ref>{{cite journal |author=N. F. R. Crafts |title=Enclosure and labor supply revisited |journal=Explorations in economic history |issue=15 |month=April |year=1978 |pages=172–183 |doi=10.1016/0014-4983(78)90019-0 |volume=15}}.</ref>

====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.<ref>{{cite book|author=North, Douglass C.|title=Institutions, Institutional Change and Economic Performance|publisher=Cambridge University Press|year=1990}}</ref> In new institutional economics and other fields focusing on public policy, economists seek to judge when and whether governmental intervention (such as [[tax]]es, [[Welfare (financial aid)|welfare]], and [[Regulatory economics|government regulation]]) can result in potential gains in efficiency. According to [[Gregory Mankiw]], a [[New Keynesian economics|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.<ref>{{cite book|title=Principles of Economics|publisher=Harvard University|year=1997|pages=10|unused_data=Mankiw, N. Gregory}}</ref> Market failure occurs when an [[externality]] is present and a market will either underproduce a product with a positive externality or overproduce a product that generates a negative externality. Air pollution, for instance, is a negative externality 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 [[fascism|fascist]] regimes, monarchies, and single-party states,<ref name="Burnham" /> while it has been observed{{Who|date=March 2008}} that many democratic societies such as the [[Bolivarian Republic of Venezuela]] and [[Anarchist Catalonia]] have been expressly anti-capitalist.<ref>On the democratic nature of the Venezuelan state, see [http://www.gobiernoenlinea.ve/estructura_edo/estructura_edo4.html]. On the current government's rejection of capitalism in favor of socialism, see[http://www.gobiernoenlinea.ve/misc-view/sharedfiles/Metas_Milenio.pdf] and[http://www.minci.gob.ve/motores/62/11852]</ref> 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]] further indicates that capitalist democracies rarely make war with one another and have little internal violence.<ref>{{cite web |url=http://www.mtholyoke.edu/acad/intrel/ray.htm |title=Does democracy cause peace|author=James Lee Ray|accessdate=2008-02-26}}</ref><ref>{{cite web |url=http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/0,,contentMDK:20708340~pagePK:210058~piPK:210062~theSitePK:336806,00.html |title=Towards a democratic civil peace? : opportunity, grievance, and civil war 1816-1992|author=Hegre, Håvard|accessdate=2008-02-26}}</ref> However critics of the democratic peace theory note that democratic capitalist states may fight infrequently or never with other democratic capitalist states because of Political similarity or political 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. Under this line of thinking, authoritarian regimes have been able to manage economic growth without making concessions to greater political freedom.<ref>{{cite web|author=Mesquita, Bruce Bueno de|url=http://www.foreignaffairs.org/20050901faessay84507/bruce-bueno-de-mesquita-george-w-downs/development-and-democracy.html|title=Development and Democracy|date=2005-09|accessdate=2008-02-26|publisher=Foreign Affairs}}</ref><ref>{{cite web|author=Single, Joseph T.|url=http://www10.nytimes.com/cfr/international/20040901facomment_v83n4_siegle-weinstein-halperin.html?_r=5&oref=slogin&oref=slogin&oref=slogin&oref=slogin|title=Why Democracies Excel|date=2004-09|accessdate=2008-02-26|publisher=New York Times}}</ref>

In response to criticism of the system, some proponents of capitalism have argued that its advantages are supported by empirical research. For example, advocates of different [[Index of Economic Freedom]] point to a statistical 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.

== See also ==

{{Portal|Capitalism}}

{{colbegin}}

* [[Anarcho-capitalism]]

* [[Anti-capitalism]]

* [[Capitalist mode of production]]

* [[Corporate capitalism]]

* [[Corporatism]]

* [[Crony capitalism]]

* [[Economic liberalism]]

* [[Finance capitalism]]

* [[Guaranteed minimum income]]

* [[Laissez-faire capitalism]]

* [[Late capitalism]]

* [[Neo-Capitalism]]

* [[Objectivism (Ayn Rand)]]

* [[Post-capitalism]]

* [[State capitalism]]

* [[State monopoly capitalism]]

* [[Technocapitalism]]

* ''[[The Theory of Business Enterprise]]'' by [[Thorstein Veblen]]

* [[Tragedy of the commons]]

* [[Wage slavery]]

* ''[[When Corporations Rule the World]]'' by [[David Korten]]

{{colend}}

== Notes ==

{{reflist|2}}

== References ==

* [[Christian Bacher|Bacher, Christian]] (2007) ''[http://books.google.co.uk/books?id=w_6PqBp64y0C Capitalism, Ethics and the Paradoxon of Self-exploitation]'' Grin Verlag. p.&nbsp;2

* [[Richard T. De George|De George, Richard T.]] (1986) ''Business ethics'' p.&nbsp;104

* [[Scott Lash|Lash, Scott]] and [[John Urry (sociologist)|Urry, John]] (2000). ''Capitalism''. In [[Nicholas Abercrombie]], S. Hill & BS Turner (Eds.), ''[[The Penguin dictionary of sociology]]'' (4th ed.) (pp.&nbsp;36–40).

* {{cite book|title=Profit Theory and Capitalism|author=Obrinsky, Mark|authorlink=Mark Obrinsky|publisher=University of Pennsylvania Press|url=http://www.questia.com/PM.qst?a=o&d=4995059|year=1983|pages=1}}

* [[Eric Wolf|Wolf, Eric]] (1982) ''[[Europe and the People Without History]]''

* [[Ellen Meiksins Wood|Wood, Ellen Meiksins]] (2002) ''[http://books.google.co.uk/books?id=FZPyKjVguVoC The Origins of Capitalism: A Longer View]'' London: Verso

==Further reading==

* {{cite book |last=Ackerman |first=Frank |authorlink= |coauthors=Lisa Heinzerling |title=Priceless: On Knowing the Price of Everything and the Value of Nothing |publisher=New Press |date=August 24, 2005 |location= |pages=277 |url= |doi= |id= |isbn=1565849817}}

* {{cite book|title=Politics Without Romance|author=Buchanan, James M.}}

* {{cite book|title=Civilization and Capitalism: 15th - 18 Century|author=[[Fernand Braudel|Braudel, Fernand]]}}

* {{cite book|title=Theories of Modern Capitalism|author=Bottomore, Tom|year=1985}}

* {{cite journal |author=H. Doucouliagos and M. Ulubasoglu |title=Democracy and Economic Growth: A meta-analysis |journal=School of Accounting, Economics and Finance Deakin University Australia |year=2006 }}

* {{cite book|author=Coase, Ronald|year=1974|title=The Lighthouse in Economics}}

* {{cite book|author=Demsetz, Harold|year=1969|title=Information and Efficiency}}

* {{cite book|author=Fulcher, James|title=Capitalism|year=2004}}

* {{cite book|author=Friedman, Milton|title=Capitalism and Freedom|year=1952}}

* {{cite book|author=[[John Kenneth Galbraith|Galbraith, J.K.]]|title=American Capitalism|year=1952}}

* {{cite book|author=Böhm-Bawerk, Eugen von|title=Capital and Interest: A Critical History of Economical Theory|location=London|publisher=Macmillan and Co.|year=1890}}

* {{cite book|author=Harvey, David|title=The Political-Economic Transformation of Late Twentieth Century Capitalism.|location=Cambridge, MA|publisher=Blackwell Publishers|year=1990|isbn=0-631-16294-1}}

* {{cite book|author=Hayek, Friedrich A.|title=The Pure Theory of Capital|location=Chicago|publisher=University of Chicago Press|year=1975|isbn=0-226-32081-2}}

* {{cite book|author=Hayek, Friedrich A.|title=Capitalism and the Historians|location=Chicago|publisher=University of Chicago Press|year=1963}}

* {{cite book|author=Heilbroner, Robert L.|title=The Limits of American Capitalism|year=1966}}

* {{cite book|author=Heilbroner, Robert L.|title=The Nature and Logic of Capitalism|year=1985}}

* {{cite book|author=Heilbroner, Robert L.|title=Economics Explained|year=1987}}

* [[Matthew Josephson|Josephson, Matthew]], ''The Money Lords; the great finance capitalists, 1925-1950'', New York, Weybright and Talley, 1972.

* {{cite book|author=[[Rosa Luxemburg|Luxemburg, Rosa]]|title=The Accumulation of Capital|year=1913}}

* {{cite book|author=[[Karl Marx|Marx, Karl]]|title=Capital: A Critical Analysis of Capitalist Production|year=1886}}

* {{cite book|author=Mises, Ludwig von|title=Human Action: A Treatise on Economics|publisher=Scholars Edition|year=1998}}

* {{cite book|author=Rand, Ayn|title=[[Capitalism: The Unknown Ideal]]|publisher=Signet|year=1986}}

* {{cite book|author=Reisman, George|year=1996|title=Capitalism: A Treatise on Economics|location=Ottawa, Illinois|publisher=Jameson Books|isbn=0-915463-73-3}}

* {{cite book|author=Resnick, Stephen|year=1987|title=Knowledge & Class: a Marxian critique of political economy|location=Chicago|publisher=University of Chicago Press}}

* {{cite book|author=Rostow, W. W.|title=The Stages of Economic Growth: A Non-Communist Manifesto|location=Cambridge|publisher=Cambridge University Press|year=1960}}

* {{cite book|author=[[Joseph Schumpeter|Schumpeter, J. A.]]|title=Capitalism, Socialism, and Democracy|year=1983}}

* {{cite book|author=Scott, John|title=Corporate Business and Capitalist Classes|year=1997}}

* {{cite book|author=Seldon, Arthur|year=2007|title=Capitalism: A Condensed Version|location=London|publisher=Institute of Economic Affairs}}

* {{cite book|author=Sennett, Richard|title=The Culture of the New Capitalism|year=2006}}

* {{cite book|author=Smith, Adam|title=An Inquiry into the Nature and Causes of the Wealth of Nations|year=1776}}

* {{cite book|author=De Soto, Hernando|year=2000|title=The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else|location=New York|publisher=Basic Books|isbn=0-465-01614-6}}

* {{cite book|author=Strange, Susan|title=Casino Capitalism|year=1986}}

* {{cite book|author=[[Immanuel Wallerstein|Wallerstein, Immanuel]]|title=The Modern World System}}

* {{cite book|author=[[Max Weber|Weber, Max]]|title=The Protestant Ethic and the Spirit of Capitalism|year=1926}}

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