Capitalism
Capitalism is an economic and social system in which trade, industry and the means of production (also known as capital) are privately controlled (either singly or jointly) and operated for a profit[1][2][3] Capital is vendible, which means it can be owned, operated, and bought and sold for the purpose of generating profits for private owners, either singly or jointly.[4][5] In a capitalist system, investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by private decisions, usually within the context of markets.[6] In a capitalist state, private property rights are protected by the rule of law of a government through a limited regulatory framework.[7][8] Capitalist economic practices incrementally became institutionalized in England between the 16th and 19th centuries, although some features of capitalist organization existed in the ancient world, and early aspects of merchant capitalism flourished during the Late Middle Ages.[9][10] Capitalism has been dominant in the Western world since the end of feudalism.[10] Capitalism gradually spread throughout Europe, and in the 19th and 20th centuries, it provided the main means of industrialization throughout much of the world.[11] Although the role of government has varied widely in capitalist systems, the term "capitalism" is often used to refer specifically to free market capitalism. In a free-market capitalist state, legislative action is confined to defining and enforcing the basic rules of the market, [7][8] although the government may provide some public goods and infrastructure.[12] The central axiom of free-market capitalism is that the best allocation of resources is achieved through consumers having free choice, and producers responding accordingly to meet consumer demand. This contrasts with economic planning, in which the state directs what shall be produced based on rational economic planning. This also contrasts with decentralized economic planning and democratic worker management. Capitalists believe that the privatization of state-provided services can achieve more efficient outcomes by enabling them to better respond to market forces. Free-market capitalists usually support free trade and the abolition of subsidies. Some consider laissez-faire to be pure capitalism, [13] although it has never existed in practice.[13][14][15] Laissez-faire signifies minimizing[16] or eliminating state interference in economic affairs, allowing the free play of supply and demand. All large economies today have a mixture of private and public ownership and control, so some feel that the term mixed economy describes most contemporary economies.[17][18] In the capitalist mixed economy, the state intervenes in market activity and provides many services.[19]
History Main article: History of capitalism The historical development of capitalism is complicated and requires an in-depth analysis. Some general trends, however, are possible to pinpoint here and be expanded more fully in the History of capitalism. According to many accounts, the modern capitalist system was born out of European feudalism, a system composed of land-owning aristocracy and serfs. With the crumbling of feudalism, and the movement of serfs to cities, merchants and wage earners grew in number and importance. Overland and overseas merchants dominated the mercantalist period as commodities flowed all over Europe and the world. At the period from the 18th century, the commercial stage of capitalism transcended from the previous domination of capitalism by merchants. Commercialism, or commercial capitalism, grew out of large chartered join-stock companies such as the British East India Company and the Dutch East India Company. Handicraft artisans and merchant trade gave way in the late 1800s to the driving force of large-scale industry during the Industrial Revolution, particularly in Great Britain but soon spreading to the rest of Europe and North America. In the late 19th century, the control and direction of large areas of industry came into the hands of trusts, financiers and holding companies. This period was dominated by an increasing number of oligopolistic firms earning supernormal profits.[41] Gradually, during this Progressive Era, the U.S. federal government played a larger and larger role in passing antitrust laws and regulation of industrial standards for key industries of special public concern. 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. This became known as the Keynesian era because of John Maynard Keynes' argument that governments need "prime the pump" during times of economic depression. A long postwar boom followed but ended in the early 1970s, convincing many governments to move away from the Keynesian welfare-statist mode of regulation and follow instead Friedrich Hayek and Milton Friedman laissez-faire views of deregulation. The collapse of the Soviet Union further convinced many of the superiority of capitalism over communism. A number of trends, such as global free trade pacts, telecommunications revolution, and the increasing ease of global travel, 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. Capitalism should now be viewed as increasingly global.
Perspectives The concepts of capitalism has evolved alongside capitalism itself resulting in a diversity of perspectives. Following are the necessarily brief perspectives of the major schools of economic thought on capitalism. Classical political economy Main articles: Classical economics and Classical liberalism A drawing of a man standing up, with one hand holding a cane and the other pointing at a book Portrait of Adam Smith by John Kay, 1790 Classical economic thought and classical liberalism emerged alongside the development of capitalism in Britain in the late 18th century. The defining precepts of capitalism for most classical political economists were the promotion of free trade, free markets, the "invisible hand" as opposed to mercantilism. These theories carved out a limited role for government and a larger role for the "economy" or "market". 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. Marxian political economy Main article: Marxian economics Karl Marx Concurrent to the classical political economists was Karl Marx who considered capitalism to be a historically specific mode of production (the way in which the productive property is owned and controlled, combined with the corresponding social relations between individuals based on their connection with the process of production) in which capitalism has become the dominant mode of production.[42] For Marx, capitalism may have free markets but the development of capitalism is governed by the struggle between the class of the owners of means of production - the capitalists or bourgeoisie - who also make claims on capitalist surplus value and those who sell their own labour - the workers - and ultimately create surplus value that is appropriated by the capitalists. 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.[43] Weberian political sociology Max Weber in 1917 Max Weber, 19th century German social theorist, considered market 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 efficiency and productivity. According to Weber, workers in pre-capitalist economic institutions understood work in terms of a personal relationship between master and journeyman in a guild, or between lord and peasant in a manor.[44]